Gulf Island Fabrication Inc (GIFI) 2007 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication, Inc. 2007 Fourth Quarter Earnings Release Conference Call. (Operator instructions.)

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 the Gulf Island Fabrication's 2007 fourth 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 the 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 16, 2007. The 10-K was included as part of the company's 2006 Annual Report flied 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. Robin Seibert, our CFO. I'll turn the conference over to Robin Seibert.

Thank you, Deborah. I'd like to review the press release. The press release consists of two pages. The first page has text. The second page is income statement table form. I'd to look at -- review the second page first.

For the quarter ended December 31, 2007, compared to 2006, our revenue was $100.9 million, compared to $76 million. Cost of revenue was $84.7 million compared to $69 million. The gross profit was $16.2 million, versus $7 million; which is a gross margin of 16%, versus 9.2%. General and administrative expenses were $2.5 million, versus $2.4 million. Other, which is interest expense and interest income was $74,000, compared to $276,000. Income before taxes was $13.8 million, compared to $4.9 million. Income taxes were $4.9 million, compared to $1.2 million. And net income was $8.9 million, versus $3.7 million, which gave us the basic earnings per share of $0.62 versus $0.72 [sic - see press release]; a diluted earnings per share of $0.62 versus $0.26; those were based on weighted average shares of 14.2 million versus 14 million for basic; and the weighted adjusted shares average was 14.3 million, compared to 14.2 million.

Depreciation and amortization was $3.7 million versus $3.2 million. And during the quarter we had a dividend to $0.10, compared to a dividend of $0.075 for the quarter of December of 2006.

For the 12 months ended December 31, 2007, compared to 2006, our revenues were $472.7 million, compared to $312.2 million. Our cost of revenue was $415.9 million, compared to $273.8 million. Gross profit was $56.8 million, versus $38.4 million, which is a gross margin of 12% compared to 12.3%. General administrative expenses were $10.3 million, compared to $9.1 million. Operating income was $46.5 million, versus $29.3 million.

Other interest and expense was $374,000, compared to $1.2 million, yet in the year ended December of '06 we had actually sold our ownership interest in the MinDOC and that was about $1 million. That's why the 2006 other is much greater than the 2007.

Our income before taxes was $46.9 million, versus $30.4 million. Income taxes was $15.7 million, versus $9.1 million. Net income was $31.2 million, versus $21.3 million.

Earnings per share basic was $2.20, versus $1.54. Our diluted earnings per share was $2.18, versus $1.53. The weighted average shares to compute those was $14.2 million, versus $13.8 million. The adjusted weighted average shares was 14.3 million, versus 13.9 million. Depreciation and amortization was $14.1 million, versus $12.5 million. During the year we declared dividends of $0.40, compared to $0.30.

If you go to the first page with the text it shows the company had a revenue backlog of $330.4 million and a man-hour backlog of 3.7 million man-hours remaining to work. A summary of selected balance sheet data includes cash, cash equivalents, and short term investments at December 31, 2007 were $24.6 million, compared to $10.3 million for '06. Total current assets were $135.7 million, versus $96.1 million. Property, plant, and equipment net was $188.8 million, compared to $155.4 million. Total assets were $325.2 million, versus $252.8 million. Current liabilities were $78.4 million, compared to $40.2 million. We didn't have any debt at the end of the year of 2007, nor we had any debt at the end of the year of 2006. Shareholders equity was $228.9 million, compared to $200.8 million. Total liabilities and shareholders equity was $325.2 million, compared to $252.8 million.

Other information included in our sales for the year ended December of 2007, deepwater represented 78% of our contract sales, compared to 57% for '06. And our foreign sales included in our sales numbers for '07 represented 24%, compared to 7% for 2006.

In the quarter ended December of '07 our tax rate was 35.8%, compared to 24.2% for the quarter of '06, mainly because in 2006 we had a lot of federal and state job hiring and credits that were part of GO Zone projects and hurricane relief projects, and those expired in mid '07. And the tax rate for the year ended 2007 was 33.5%, compared to 29.9%. In 2008 we expect our tax rate to be approximately 34%. We anticipate depreciation in 2008, based on our current expenditures, to be about $4 million a quarter.

During the quarter ended December of 2007 the company worked 916,000 man-hours. That compares to 828,000 man-hours for the quarter of '06. The total man-hours worked for 2007 were 3.6 million. That compares to 3.3 million for the year ended 2006. The backlog -- the deepwater backlog at the end of '07, 185.4 million, or 56% representing deepwater; 62.6 million, or 19%, representing foreign. We anticipate approximately 243.9 million of run out of backlog in '08 and then the remainder of 86.5 million thereafter.

Capital expenditures for 2007 was $46.9 million and that compares to $27.6 million for '06. And our board of directors have approved a capital budget for 2008 of approximately $20.9 million.

I'd now like to open it up to questions from the analysts, please.

Thank you. (OPERATOR INSTRUCTIONS). We will go first to Jim Rollyson with Raymond James.

Good morning, guys.

Good morning, Jim.

Hey Kerry, you've been talking for three or four quarters now about backlog potential, and just more of the timing being the question mark, and obviously it looks like you picked up some this quarter. Can you maybe just layout how -- what the outlook is today and -- I don't know, you usually don't get too specific, but maybe talk about what kind of work you actually picked up since last quarter?

Okay. Sure, Jim. Basically, we picked up several brownwater tow boats to bill. As you remember, we've always said we wanted to get into another type of business that would take care of the valleys in our labor curve as we move from one large project to another large project. We've managed to pick up several of these particular vessels; in fact, we picked up nine relatively small boats and we plan to work over the next three years. Of course, these projects all have pretty good escalation clauses for our labor and material. But that was a big part of the pickup of our backlog.

We're still awaiting a couple of deep-water projects that possibly could be awarded in 2008, as well as there's a very few, but a few shallow-water projects we're looking at that may come to pass, probably in the second quarter. So we really didn't enhance to any great extent our deep-water backlog, you might say, but we're working on that.

What do you suppose the holdup is? There's certainly a lot of activity going on around the world on the deep-water side. Is it just a lag effect from all that, that just hasn't gotten into engineering and then your side of the business?

Jim, I think that some of that's true, but our clients are also saying the inability to secure the deep-water drilling rigs are really causing them some problems on some of these fields. So we're seeing some delays because of not being able to get rigs to do the exploratory and drilling to see what they really have and come up with a concept.

I don't know if it has any relevance, but since I've been in the business, every year it's been an election year, you normally have some slowdowns, and then after election, we normally see a pickup, specifically in the Gulf of Mexico. So we would anticipate that towards the middle of the year, we would see better bidding than we have seen recently.

That's helpful. On the tow boats, originally you talked about getting into shipyard and refinery-type work, so it sounds like you've started making progress there. You also had said before you thought maybe initially margins might be a little bit lower than your traditional work, just kind of going up the learning curve. How do you feel about margins for this work relative to what you guys normally do?

Well, we're trying to bid the same margins that we had, at least, that we have performed in the fabrication side of the business. But of course, we have some good people we've hired that have a lot of experience in this type of work and we'll just have to wait and see how well they do on these particular projects. But we would anticipate a learning curve on the first one or two vessels, and then we should get back to maximum efficiency after that.

And also on the refinery and petrochemical side, these projects have continued to move further into the year. We have bid two of those projects that we were under consideration for, and we're waiting any day to see whether or not they're going to be awarded to us or someone else. So we're waiting on those two projects. We are talking about some other projects in the petrochemical side of the business. So we're all looking at it. We're still pretty positive about it. But it just remains to be seen who's going to get awarded these projects.

All right. And last question for me, just margins, this quarter, were pretty strong and usually you guys are traditionally down a little bit in the fourth quarter with seasonal aspects of your business. Can you maybe talk about what drove the strength this quarter?

Well, two things. One is we've had a couple of quick turnaround-type projects that we're able to bid higher margins than we normally do in a longer-term project. So that really assisted us. The weather was good during the fourth quarter. And actually it was three things. The third thing is the -- we had more labor in the fourth quarter than what we've seen previous in the year, where we've had a lot of material flow through our P&L, where it was a greater percentage of labor that -- this particular quarter. So that really helped when you're looking at percentages for margin.

Thanks, Kerry. Appreciate it.

Okay, Jim. Thank you.

(OPERATOR INSTRUCTIONS.) We'll go next to Herb Bookbinder with Wachovia.

Hi, guys. Kerry, can you explain at what point you would release specifically a contract award? These boat orders are probably pretty significant, but maybe if you look at them individually, they weren't big enough to justify releasing. But did you receive these contracts all in one lump sum or separately, and why didn't you make a release on this? At what point do you decide when to release certain contracts?

Herb, you're right about it. This was several customers that we received these orders from, and the aggregate on each set of boats had not come to threshold that we normally use, about $40 million now.

$40 million? Okay, because it used to be $20 million.

Yeah, I know. Well, we have bigger projects than before; you know, more in line with our business and our increased revenues. We said, "Let's go up to $40 million" would be a real -- kind of a better number for us to use.

Okay. As far as any mend dock jobs around, can you explain where we are with that? I know you don't release, but maybe give us an update on it?

Well, the first mend dock project that we're doing now is going quite well. The graving dock is just about complete. We have two sections of the existing mend dock on the contract in the graving dock. We should have several other sections going into graving dock within the next 60 days. And of course, that delivers around the end of the summer of this year.

As far as any other mend docks, of course, we're promoting the mend dock as well as -- you know, even a sales call or whatever's out there that we can bid on. But we don't specifically have a contract for a second mend dock at this point in time. We have priced, needless to say, a second mend dock, but there's no award on that at this point in time.

Okay. What's the labor situation these days; the use of outside labor versus what you were doing last year, which I think that problem you were talking about as being pretty significant, we don't mention it now. The fact that you're not mentioning it a good sign, or is it still as prevalent as it was before?

Well, we've probably reached the peak on contract labor and we should -- we actually have seen in the first quarter of this year, that contract labor beginning to diminish, and we would see that happening as we go through the first half of the year. And hopefully, we can stop relying probably in the second quarter on the high use of contract labor. Right now, we have over 500 contract laborers in our various facilities.

All right. Lastly, my understanding is that you did some work for International Shipholding on putting some, I guess, an additional deck on a couple of their ships. Is that true, and is that the kind of work that you might do in the future, or is that a one-shot deal?

Well, we'll do any of that type of work in the future, and that was done a couple of years ago. That's kind of history. I think it was in -- probably in 2005 or early 2006 we did that particular work. There's just not a lot of that work out there, but if it comes to pass, we'll be glad to do it. Right now, we are doing besides the tow boats we mentioned, we're doing some mid-body supply boat sections for Edisons West. Apparently, their shipyards are pretty full with work and they needed to subcontract some mid-bodies at this point in time, and we had been working on that during the last quarter, and we're continuing to work on it through the first quarter as well as into the second quarter.

Great. Last question, in terms of the capacity utilization, some of your key competitors, do you sense that you're starting to see some of that capacity being used up, or is there still plenty of excess capacity out there?

Well, considering we haven't had a lot of bids out there recently, I think we may some capacity come open with some of our competitors. We're not sure, but I would venture to say there would be some capacity coming up that would -- which could make future bids more competitive.

Okay. But in terms of what you're bidding on now, some of these larger jobs, you don't sense a significant amount of price competition that are causing you to make some real cutbacks in what you're getting in margin?

Well, we're not cutting back, but yeah, there probably will be some pressure on the pricing on these projects.

Okay. All right, thanks a lot, and keep up the good work.

Sure.

Thank you. (OPERATOR INSTRUCTIONS.) We'll go next to Michael Marino with Johnson Rice.

Good morning, Kerry.

Good morning, Mike.

I apologize if I ask a repeat question; I was dropped for a second. But did you -- could you give an update on the Chevron negotiations as it relates to the Tahiti SPAR and topside sitting at the dock?

Well, I can't comment too much on that, Mike. All our negotiations are pretty much done with Chevron and Technip on that particular project, but I can't give you any specifics on it. In fact, the hull should be sailing away probably as we speak, either today or tomorrow.

Okay. All right, but was there any benefit from those negotiations in the fourth quarter?

Well yes, there was some. How significant it was, I really -- don't think it was all that significant.

Okay.

There was definitely some ups in the negotiations, because normally you wouldn't take any profit on those negotiations until you complete them. So we have completed them, and (inaudible) we took some profits on it, but it's as significant as you probably pointed -- trying to point out.

Okay. And the backlog showed some nice growth. Does this give you more confidence in maybe the back half of '08, now that you've managed to -- I guess previously, you'd indicated that you had enough backlog to keep you through the first half of this year, and now with the growth, are you, I guess, more comfortable with the yard being at better capacity levels through the end of the year, or -- how long does this work?

Mike, I think we're more comfortable going well into the third quarter, but we have not filled our book of business yet for the end of the third quarter and the fourth quarter.

Okay. That's helpful. And then maybe one final question. Could you put some maybe dollar figures around those downstream bids that you have outstanding?

That's very difficult, Mike, because there are options -- there's many options in these particular bids, where these are smaller modules, and they could put so many in our facility, maybe so many in another facility, or just not do some or do them in the plant. So there's a lot of options on these particular projects. But you know, I would see a rough -- it'd be a rough range, would be anywhere from $40 million to maybe $80 million.

Okay, thank you. That's helpful.

Okay.

Thank you, Kerry.

Okay. Bye.

Thank you. And at this time, I would like give everyone one final opportunity to signal for questions. (OPERATOR INSTRUCTIONS).

Thank you. And with no additional questions in the queue, I would like to thank everyone for participating on today's Gulf Island Fabrication 2007 Fourth Quarter Earnings Release conference call. If you would like to listen a replay of today's conference, one will be available beginning today, February 28th at 12:00 central, 1:00 eastern, and run until March 13th, 2008, also at 12:00 central, 1:00 eastern. The telephone number to dial in for the replay is (888) 203-1112. If you do need a toll number for that conference, that number is (719) 457-0820. Please reference the replay code of 6367416.

Again, we do thank everyone for participating on today's conference call. You may disconnect at this time.