Gulf Island Fabrication Inc (GIFI) 2009 Q1 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication Incorporated 2009 first quarter release conference call. (OPERATOR INSTRUCTIONS)

At this time, I would like to turn the conference to Ms. Deborah Knoblock, for opening remarks and introductions. Deborah, please go ahead ma'am.

I would like to welcome everyone to Gulf Island Fabrication's 2009 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 10-K filed March 6, 2009. The 10-K was included as part of the Company's 2008 annual report filed with the Securities and Exchange Commission earlier this year. The Company assumes no obligations to updates these forward-looking statements.

Today we have Mr. Kerry Chauvin, Chairman and CEO; Mr. Kirk Meche, President and COO; and Mr. Robin Seibert, our CFO. Robin.

Thank you, Deborah. I'd like to review Gulf Island's press release issued for the first quarter of 2009. The press release consists of two pages. Page one is tax, and page two is an income statement. I'd like to review page two, which is the income statement, first.

The following are the results of operations for March 31, 2009 compared to March 31, 2008. Revenue was $85.0 million compared to $123.7 million. The cost of revenue was $73.2 million compared to $100.5 million. Gross margin was $11.8 million, or 13.8% of revenue, compared to $23.2 million, or 18.7% of revenue.

Some contracts include cost associated with specific capital projects required by the fabrication process to complete that project. If these costs provide a future benefit to the Company, these costs are capitalized, thus resulting in a direct increase on profit margins on those contracts. Related capitalized costs net of depreciation on those contracts was $1.6 million compared to $3.3 million.

General and administrative expenses were $2.2 million, or 2.6% of revenue, compared to $2.7 million, or 2.2% of revenue. Operating income was $9.5 million compared to $20.5 million. Net interest income was $3,000 compared to $103,000. Other income expense was $0 for the current period and we had a loss of $60,000 for the period ended March 31, 2008. The loss for that period was for the sale of miscellaneous equipment.

Income before taxes was $9.5 million compared to $20.5 million. Income tax expense was 35% compared to 34.5%. Income taxes were $3.3 million compared to $7.1 million. We currently expect the tax rate to be 34% to 35% for the remainder of the year.

Net income was $6.2 million compared to $13.4 million. Basic earnings per share were $0.43 compared to $0.95. Diluted earnings per share were $0.43 compared to $0.94. Weighted average shares outstanding were 14.3 million shares compared to 14.2 million shares. Adjusted weighted average shares outstanding were 14.3 million shares compared to 14.3 million shares.

Depreciation expense was $4.5 million compared to depreciation expense of $4.2 million. We declared and paid cash dividends of $0.10 a share for both quarters ended March 31, 2009 and 2008. Please refer to page one of the press release for review.

We had a revenue backlog of $315.0 million, with a labor backlog of 3.4 million man-hours remaining of work. Included in our backlog of $315.0 million; 3.4 million man-hours at March 2009, was $148.9 million and 1.6 million man-hours associated with the MinDOC 2 project, which the customer had announced, will be postponed and will be utilized at another available location sometime in the future.

The following represents selected balance sheet information for March 31, 2009 compared to December 31, 2008. Cash and short-term investments were $21.7 million compared to $13.8 million. Total current assets were $131.5 million compared to $136.4 million. Property, plant and equipment net of depreciation was $203.5 million compared to $204.7 million. Total assets were $343.4 million compared to $350.9 million. Total current liabilities were $59.5 million compared to $74.9 million. Long-term debt was $0 for both periods.

Shareholders' equity was $259.1 million compared to $254.2 million. Total liabilities and shareholders' equity was $343.4 million compared to $350.9 million.

Other financial information for March 31, 2009 compared to March 31, 2008 consists of pass-through costs was 35.8% of revenue compared to 39.9% of revenue. Man-hours worked were 847,000 compared to 967,000. Deepwater revenue represented 45% of revenue compared to 72% of revenue. Foreign revenue represented 1% of revenue compared to 26% of revenue.

Other financial information for March 31, 2009 compared to December 31st consists of revenue backlog was $315.0 million compared to $360.2 million. Remaining man-hours to work was 3.4 million compared to 3.9 million. Revenue backlog for deepwater was $165.5 million or 52.5% compared to $200.8 million or 55.8%. Revenue for foreign locations was $1.1 million or 0.3% compared to $1.5 million or 0.4%.

Other backlog at March 31, 2009; we expect to recognize revenue of approximately $107.0 million, not including any change orders, scope growth or new contracts that may be awarded during the remainder of 2009; and approximately $208.0 million backlog which $148.9 million is specific to the MinDOC project and $59.1 million of backlog is for other projects. That is expected to be recognized as revenue in 2010 and thereafter.

We had approximately 1,675 employees and 40 contract employees. That compares to 1,850 employees and 150 contract employees at December. CapEx for the first quarter of 2009 was $3.8 million. CapEx for the remainder of 2009 is approximately $14.0 million, which includes $8.5 million on a drydock for our Houma facility and approximately $1.2 million to complete phase 2 on the graving dock in our Gulf Marine facility.

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

(OPERATOR INSTRUCTIONS) Your first question is from Joe Agular of Johnson Rice.

I wanted to ask a question I guess on details in the quarter. I guess last quarter you all had mentioned that there might be some opportunity to recapture some of the extra cost that you recognized from the load out of that Tombua Landana project. Did any of that fall into Q1?

We did have some, Joe, and actually it settled out to be right around $400,000 to the good.

Okay. So then were there any other unusual sort of items in the quarter with respect to settlements or anything like that?

No.

So what we were looking at is pretty much a clean number, based upon just generally you were much more efficient this quarter than last quarter. Is that kind of the way to summarize it?

That's correct.

Okay. Well that's great. The next question I guess I had is, when we look at the remaining backlog that you mentioned working off in 2009, about $108 million or so, is that going to be sort of equally spread out throughout the year or does that fall more heavily into Q2?

I'd say it's more into Q2 and Q3.

Okay. So, Kerry then I guess the obvious question is, walk us through maybe how you think of the rest of the year, the Q3, Q4 numbers -- not numbers, but business volumes unfold and how you balance between either gearing up or gearing down in the yard with respect to the volumes that you anticipate?

Well, we have a plan of course in place if we don't get any other work, needless to say we will have to reduce our workforce as well as our costs to coincide with whatever work levels we have to work; and we will do that so we don't lose a lot of cash. But we are actively bidding other types of projects besides just offshore fabrication. There still seems to be some business in the marine side of our market and we're looking at that, specifically bidding on drydocks that are somewhat government sponsored, for economic development as well as some floodgates and things of that nature.

So we have shifted some of our gears to more where we potentially see the market in the near future. The offshore fabrication, there will be some projects bid, but probably not until the third quarter of this year, so we're staying on top of that. You know, some of it is always pushed to the right a little more, but we really think there will be probably some projects coming out in the third quarter.

And would those projects be out early enough to help your fourth quarter?

Well, we would think so because what you're looking at is steel deliveries are quite rapid these days. The steel mills are running out of work themselves and they can produce steel rather quickly. So if we can get awarded a project in third quarter, it sure would help our fourth quarter.

Okay and just to clarify something you just said on some of the non-oilfield type work that you're looking at doing, you mentioned drydock work. Do you mean like bringing a ship into you or building a drydock?

No. Building a drydock for -- there's three of them coming out for bid from Terrebonne Parish in the State of Louisiana that we're bidding on and so we're looking at that. That is the same thing as what we normally do, it's basically steel, so if we could land a couple of those projects it would really help us.

Your next question is from Joe Gibney of Capital One Southcoast.

Just relative to what's in existing backlog now, where are we on MinDOC 1? Do you still see a little bit of flow-through in Q2 or are we essentially getting close to kind of wrapping that up at this point?

There will be some flow-through in Q2 and possibly a smaller amount in Q3.

Okay. And on the existing towboat award that you have, still general expectation is the same as we had at the end of last quarter, which was ramping up and trying to get through this by the end of 2010; is that still accurate?

That's correct. We've actually moved up a couple of the deliveries on these boats, but that's correct. We delivered one and we're working on four and we have four more to complete after that.

Okay. Could you speak a little about the outlook within that subsegment as you think about opportunities away from offshore fab in the near-term? Are you still constructively positive about the towboat market opportunities there or are you still kind of more in the wait and see approach for now?

Well, I think it's more wait and see. Those clients are kind of holding back on spending addition money. They're not canceling contracts or anything of that nature, but to go ahead with more boats, I think they've taken a very conservative approach at this point in time. I think we'll see a little better midyear when we get a little better definition possibly on the economy and the capital markets if they're going to improve.

Okay. And how about the downstream outlook, any other modular work you guys are looking at that could be out there for back half of the year?

Yes, we are and we're constantly talking to these large engineering companies about the potential modules coming out. There are some that will come out and we hope to participate in that. Not as many as we originally anticipated, but there are some still coming out.

Okay. And last one; you guys have done a great job kind of managing that contract employee count and working it down, I think you said 40 now. Do you anticipate kind of flexing that down a little bit more as you work your way through the next couple of quarters or kind of general stance on the contract side of the equation?

Well, we'll be reducing that. There's still some contract labor down in Texas, because we have to have a hole watch, as they call it, confined space watches and that's keeping our numbers at a certain level down in South Texas. But we should be working through that and decreasing over the next quarter.

Your next question is from John Fitzgerald of Raymond James.

Can you guys talk a little bit, maybe give some more color on the sequential margin expansion? Was it more just finishing up the Tombua Landana project or was it the fewer contract labor hours, or kind of all of the above?

Probably all of the above. I would think that we had gained some efficiency by eliminating some of our contract labor and also we just made a fair amount of progress on the projects we have in the yard. Like Kerry said, we have four boats under construction. We're making a fair amount of progress on our E&I project, and then we're moving right along on the first MinDOC.

Okay. And I guess speaking to some of those marine or the brown water boats, are you guys still planning on margins in that segment; are you still bidding them at levels close to your traditional fabrication work or how do you see that going forward?

Well, what we're seeing is maybe just slightly below our traditional fabrication levels, but we are trying to get the maximum margin we can possibly get out of them.

We'll take a follow-up from Joe Agular of Johnson Rice.

Kerry, you know, this is always I guess a tough question for you all to address, but you gave the backlog numbers, but you all, don't you traditionally have some work that kind of just shows up quarter to quarter?

That's correct.

I was just trying to get a feel for maybe if you could, how much that might be, let's say in any given quarter this year?

That is a tough question. You know, we have a little company like Dolphin and they work on a very small backlog and their work pops up more than the other companies. But you know, it's been a good little company for us and we don't report their backlog, because we don't know what it is. So they have a small backlog they work on, but they continue to keep their revenues at a nice level throughout the year. Because you'll still see maintenance and repair work and upgrades going on offshore, as well as infrastructure projects for government entities that happen in the lakes and bays and as far as pump stations and things of that nature, flood gates. So hopefully that will be fairly consistent. How much, you know, it's hard to tell, Joe, but between change orders that increase work during the quarter and other jobs, it varies from quarter to quarter, it's pretty drastic. We can't really determine that.

Okay. And then I guess if you could give a general comment on maybe any changes you've noticed if at all on what you're hearing from the engineering firms and the oil companies themselves with respect to some of these deepwater projects? I know you mentioned Q3 you may see some awards. But I'm kind of just more interested if the tone has changed or anything has changed in the last two or three months since you had your last conference call with respect to timing or their plans or anything that you could help us with.

Well, right now, Joe, the engineering firms are looking for work, just like we are, so they're finishing some projects and they're actively seeking work. They're actually calling us to see if we know anything. So the oil companies, really as far as new projects, have somewhat shut the door at this point in time, but we think around the third quarter we should start to see some projects. There are some projects that are sitting on the shelf that could be brought out fairly quickly if we have a turnaround in the industry, but we don't have any definitive idea on that at this point in time. The oil companies, I think everybody's just holding onto cash right now and waiting to see what's going to happen. There's a lot of prospects for 2010 and beyond, but 2009 is going to continue to be a pretty tough year as far as new projects.

Okay. Let me maybe ask you something in a different way here. If I look at a typical project that you guys are involved in and let's just say the cost of it is sort of half steel, half man-hours; that's a fair split, isn't it?

Normally, that's correct.

Okay, so steel prices are going to be down what right now, if I were to build something; 30% or 40%?

About 30% down; about 70% of what it was.

If I'm an oil company, is there anything on the cost side at your yard that you all could show me some gains on as well? Do you expect your costs to decrease?

Well, not to a great amount on the labor side. I mean, there's still a lot of competition for labor with the shipyard activity, so I don't see on the labor side a tremendous amount of savings there, other than we become more productive. As you downsize your labor force, you tend to keep your core employees in tact and those are the most productive employees, so you would have an efficiency pick up or production pick up as you downsize. So we could have some cost savings in regard to that.

Okay. But I guess the overall point, I was just wondering if the lower overall cost of building something would be an enticement at all to somebody to get started, for a typical deepwater project?

If they had capital available and they have cash, yes, it would be an incentive for them to at least contract it as soon as possible to get the benefits of the lower costs.

That concludes the questions from our analysts. Anyone else that wishes to ask a question, please press star one at this time. With no further questions in queue at this time, that will conclude today's conference. A replay will be available starting today, April 23rd at 12:00 p.m. and ending on May 7th at 12:00 p.m. The number to call is 719-457-0820 or 888-203-1112 and using pass code 8219349. We appreciate everyone's participation today and you may disconnect at this time. Have a wonderful day.