Gulf Island Fabrication Inc (GIFI) 2008 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication Incorporated 2008 second quarter earnings release conference call. All participants are in a listen-only mode for the duration of the presentation. We will follow today's presentation with a question-and-answer session. 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 Fabrications 2008 second 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 10-K filed March 3, 2008. The 10-K was included as part of the Company's 2007 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. Robin Seibert, our CFO.

Thank you, Deborah.

I would like to review Gulf Island's press release issued for the second quarter of 2008. The press release consists of two pages, page 1 is tax and page 2 is an income statement. I would like to review page 2 first.

The following are the results of operations for the 3 months ended June 30th, 2008 compared to the 3 months ended June 30th, 2007. Revenue was $117.9 million compared to $137.6 million. The cost off revenue was $97.9 million compared to $123.4 million. Gross margin was $20.1 million or 17% of revenue compared to $14.1 million or 10.3% of revenue.

As mentioned last quarter, certain projects include costs for additions or improvements to our infrastructure that are necessary to fabricate or complete a project. Because these additions or improvements provide future benefit to us, the cost to build these projects is capitalized. Thus costs removed from project costs and subsequently capitalized directly increases our estimated profit on the project. Amounts included in project revenue that we would capitalize are $2 million compared to $2.3 million. The amounts included in project revenue mentioned above that we would capitalize are net of depreciation expense.

General and administrative expenses were $2.6 million or 2.2% of revenue compared to $2.8 million or 2% of revenue. Operating income was $17.5 million compared to $11.3 million. Net interest income was $29,000 compared to $153,000. During the quarter, interest rates were down considerably.

Other income expense were a gain of $5,000 and a loss of $1,000 respectively. Activity for both periods was for the sale of miscellaneous equipment. Income before taxes was $17.5 million compared to $11.5 million. Income tax expense was $5.7 million compared to $3.6 million. The income tax rates were 32.3% compared to 31.6%. The changes in tax rates were related to post-2005 hurricane employment hiring credits available to the company that were phased out in the third and fourth quarters of 2007. Currently we expect tax rates to be 33% to 34% for the remainder of the year.

Net income was $11.9 million compared to $7.9 million. Basic earnings per share were $0.83 compared to $0.56. Diluted earnings per share were $0.83 compared to $0.55. The weighted average shares outstanding were $14.3 million compared to $14.2 million. Adjusted weighted average shares outstanding were $14.3 million compared to $14.3 million. Depreciation expense was $4.3 million compared to depreciation and amortization expense of $3.5 million. We declared and paid cash dividends of $0.10 per share for both quarters ended June 30th, 2008 and 2007.

The following are the results of operations for the six months ended June 30th, 2008 compared to June 30th, 2007. Revenue was $241.7 million compared to $246.9 million. The cost of revenue was $198.4 million compared to $224.3 million. Gross margin was $43.3 million or 17.9% of revenue compared to $22.7 million or 9.2% of revenue. Capitalized costs net of depreciation included in project revenue was $4.6 million compared to $2.8 million.

General and administrative expenses were 53 - excuse me, were $5.3 million or 2.2% of revenue compared to $5.1 million or 2.1% of revenue. Operating income was $38.0 million compared to $17.5 million. Net interest income was $132,000 compared to $261,000. Again, interest rates were lower. Other income expense were losses of $55,000 and $5,000 respectively. Losses for both periods were for the sale of miscellaneous equipment.

Income before taxes was $38.1 million compared to $17.8 million. Income tax expense was $12.8 million compared to $5.5 million. The income tax rates were 33.5% compared to 31.0%. Net income was $25.3 million compared to $12.3 million. Basic earnings per share were $1.78 compared to $0.87. Diluted per share were $1.77 compared to $0.86.

Weighted average shares outstanding were 12 - 14.2 million shares compared to 14.1 million shares. Adjusted weighted average shares outstanding were 14.3 million shares compared to 14.3 million shares. Depreciation expense was $8.4 million compared to depreciation and amortization expense of $6.9 million. We declared and paid cash dividends of $0.20 per share through the six months ended June 30 of 2008 and 2007.

Please refer to page 1 on the press release. We had a revenue backlog of $437.7 million, with a labor backlog of 4.6 million man hours remaining to work. The following represents selected balance sheet information for June 30th, 2008 compared to December 31st, 2007. Cash and short-term investments were $19.8 million compared to $24.6 million. Total current assets were $128.0 million compared to $135.7 million. Property, plant and equipment was $197.7 million compared to $188.8 million. Total assets were $326.5 million compared to $325.2 million. Total current liabilities were $54.0 million compared to $78.4 million. Long-term debt was 0 for both periods. Shareholders' equity was $253.2 million compared to $228.9 million. Total liability and shareholders' equity was $326.5 million compared to $325.2 million.

Other financial information for the 3 months ended June 30th, 2008 compared to June 30th, 2007 consists of; pass through costs was 39.0% of revenue compared to 60.9% of revenue. Man hours worked were 1 million compared to 900,000. Deep water revenue represented 65% of revenue compared to 80% of revenue. Foreign revenue represented 12% of revenue compared to 34%.

Other financial information for the six months ended June 30th, 2008 compared to June 30th, 2007 consists of; pass through cost was 39.5% of revenue compared to 58.4% of revenue. Man hours worked were 2 million compared to 1.8 million. Deep water revenue represented 69% of revenue compared to 80% of revenue. Foreign revenue represented 19% of revenue compared to 24%.

Other financial information for June 30th, 2008 compared to December 31st, 2007 consists of; our revenue backlog was $437.7 million compared to $330.4 million. Remaining man hours to work was 4.6 million compared to 3.7 million. Revenue backlog for deep water was $255.2 million or 58.3% compared to $185.4 million or 56.1%. Revenue for foreign locations was $19.5 million or 4.5% compared to $62.6 million or 18.9%.

Of the backlog at June 30th, 2008 we expect to recognize revenues of approximately $144.9 million during the remainder of 2008, and approximately $292.8 million in 2009 and thereafter. We had approximately 2,005 employees and 350 contract employees compared to 1,820 employees and 550 contract employees.

CapEx for the first 6 months of 2008 was $17.4 million. Board-approved CapEx for the remainder of 2008 is approximately $36.3 million, which includes $15 million associated with the dry dock for our Houma facility.

I would like now to open up the call to questions of the analysts.

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question comes from John Fitzgerald with Raymond James.

Morning, guys.

Morning, John.

I think last quarter's call you noted that you had some scheduling gaps in your - in some your yards for the second half of '08. Have you guys been successful in kind of filling those up with new contracts?

Somewhat but it is not totally full. We are still working on it.

Okay. And have you noted or have you - I guess have you guys decided do some more of that marine work on the brown water boat type work? I guess you said you wanted to make sure the margin on that stuff was meeting your standard for the traditional fab work. Have you guys - do you have anymore insight on that?

We are about 60% complete on the first vessel, and it looks like it is right on target. But we could possibly get some more contracts, but at this time we are not entertaining anymore contracts until we get a little farther along on the sequence of these vessels. We have nine vessels under contract at this point in time.

Okay. Could you guys kind of describe how the bidding activity is looking, I guess by region or by deep water, international?

Well, needless to say, we are not seeing a lot of international at this point in time. There are a few projects we are tracking. Deep water, that's going to be the most active area for us and for the Gulf of Mexico specifically. And we see some projects starting, the feed study right now, which is the front-end engineering design. So when you go into feed study, possibly about 3 months later we might be seeing some - some bids come out. So we are tracking several projects. Several of them, however, have moved further out to the right, we call it, and will be delayed several months, but there will be some deep water projects coming out probably in the fourth quarter and first quarter of next year.

Okay. Appreciate the color. Thanks.

Okay.

There are no other questions in queue at this time.

(OPERATOR INSTRUCTIONS)

We will go to Joe Agular with Johnson Rice & Company.

Morning, Joe.

Good morning, Kerry and Robin. Could you maybe help us understand what the kind of the rest of this year is going to look like in terms of that backlog works off? Is it going to be heavier in the third than the fourth as it sort of typically is with the seasonal patterns or is it going to be fairly evenly spread out between the two quarters?

Well, needless to say the third quarter we normally work more hours than we do in the fourth quarter, so you will probably see a larger third quarter than what we see in the fourth quarter.

Okay.

That's typical of what we see. Now remember, we lost 3 full days this week because of the hurricane in south Texas. That was our south Texas yard. Granted in Houma we didn't lose much time but we did have a lot of rain this week, but it depends on the hurricanes and how they come about and when we have to shut down, will determine actually our level of activity for the third quarter. But as of now, we - you know, we do have most of our production gaps filled up for the third quarter.

Okay. And you all also announced, you know, a month ago or so the second MinDOC and, you know, just trying to get a feel for maybe how you think the experience of going through the first MinDOC impacts the building of the second one?

Well, we should get better, Joe. That's what we are figuring.

Yes.

There are ways we can save on building the second one, on some lessons we have learned. But again, we have to share some of that savings with our client. So it won't all go to Gulf Island and our bottom line. But, yes, we should be more efficient on the second one. By the way, Joe, no one has asked but we did secure our first contract on plant work. We didn't make a press release on it because it is under $40 million, but we have secured our first contract or first modules for a plant up in - up in the mid-section of the United States, and we should be working on that starting in the fourth quarter of this year.

Is that going to be in the Texas or Louisiana yard?

That will be in the Texas yard.

Okay. Now that's interesting, but you said it is under $40 million so you didn't press release it?

That's correct.

Okay. Is there more potential follow on work with that or is that, or is this is the first of - you know, I guess a few calls ago we used to talk frequently in terms of how much potential there was out there for this type of work.

The first one we bid we lost because client decided to stick [bill] in the plant rather than to build modules, so they weren't awarded to anybody. This was the second active one we actually bid. We are entertaining more projects of this nature. We have several yard visits that have occurred, and there's more to come. So there will be more of this work to come.

Okay. And then, could you - I know we are jumping around here, but back to the MinDOC. The schedule of the first one and the second one in terms of --

Well, on the first one we are sort of waiting on ATP, on their schedule. I saw they put a press release out yesterday that the first one should be more sometime in the first quarter of next year. The second one will be delivered in 2010, about second quarter.

Okay. And are you all getting any bids whatsoever for shelf work in the Gulf?

There's a few, Joe, but it is fairly small projects.

Right.

They kind of fill in some of our gaps, nothing of any significance.

Right. Right. Okay. That does it for me. Oh, wait I have one more actually. Robin, you mentioned - I missed the numbers, if you wouldn't mind repeating them, the breakdown of contract employees this quarter versus - I forgot whether you gave it versus last year or last quarter?

We had 2,005 employees compared to 1,820 employees at December.

Okay.

And we had 350 contract employees at June versus 550 contract employees at December.

Right. Okay. So I thought, I thought - that caught my attention because it sounds like you all have substantially reduced the percentage of our overall employees that are contract, which is - I know was an issue a year ago or so in terms of the cost side. So you all seem to be making really good progress on that front, Kerry.

Well, we are trying to do even better on it. But needless, to say some of the work has come down on our schedule, the way we are scheduling our work, and we don't need quite as many contractors, but we are actively pursuing hiring our own personnel.

And the difference for you all from a profitability standpoint of having somebody in-house versus having the contract outside workers is significant?

Yes, it is. Normally with contract workers you're lucky if you get 50% to 60% productivity out of them.

Right. Right. Excellent. Thank you very much.

Okay.

We will go next to John Fitzgerald with Raymond James.

Hi, John. John?

John, your line is open, if you could check your mute button.

Hello. Sorry, quick follow-up. On the labor front, I guess you guys said you had about I think 1,000 labor hours in the quarter. Could you guys give -

No, 1 million.

Sorry, yes, 1 million. Could you guys give kind of like a run rate you guys think you are capable of in a 12-month time frame, I guess with all seasonal factors considered?

We average anywhere from 900, 1,000 to 1 million man hours a quarter.

Right.

Multiply that by four, that's -

So you guys think you could be capable of doing about 4 million, maybe a little more, in a year?

Well, we hope to, realizing that December is normally down and January because of weather.

Right.

And daylight.

Okay. That does it for me.

Okay.

Thanks.

And there are no other questions in queue at this point.

(OPERATOR INSTRUCTIONS)

At this point I will turn things back to our presenters. Oh, we do have another question in queue. We will go to Robert Kosowsky with OFI Institutional.

Hello. Good morning. I was wondering if you could just characterize the productivity of this past quarter relative to the first quarter, which was obviously a perfect quarter for you guys.

Yes, the first quarter everything went right. We had a little down time in the second quarter because of rain and other factors, but basically it was a pretty good quarter. It was - you know, both quarters were excellent quarters for us.

Okay. And I guess you're confident of keeping the gross margin above that 15%?

Well -

(multiple speakers) that's out there?

That's something we always hope to do but it is no guarantee.

Okay. Thank you very much and good luck.

All right. Thank you.

And at this point I will turn things back over to our presenters for any additional comments.

We have none.

Just I want to thank everybody for calling in.

Thank you.

And we will talk to you all again next quarter.

This does conclude today's conference. Thank you for your participation.

Today's conference call is available for replay starting today, July 25th, 2008 at 12:00 p.m. Central time. The replay will run through August 8th, 2008 at 12:00 p.m. Central time. The phone number to reach this replay is 888-203-1112. That number again, 888-203-1112.

Again, thank you for your participation. You may now disconnect.