Gulf Island Fabrication Inc (GIFI) 2009 Q2 法說會逐字稿

Good morning, and welcome to today's Gulf Island Fabrication, Inc., 2009 second quarter release conference call. All participants will be in a listen-only mode for the duration of the presentation. Today's call is being recorded.

At this time I would like to turn the conference over to Ms. Deborah Knoblock for opening remarks and introductions.

I would like welcome everyone to Gulf Island Fabrication's 2009 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 in 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 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 obligation to update 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.

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

The following are the results of operations for the three months ended June 30, 2009 compared to the three months ended June 30, 2008.

Revenue was $79.1 million compared to $117.9 million. The cost of revenue was $70.8 million compared to $97.9 million.

Gross margin was $8.3 million or 10.5% of revenue compared to $20.1 million or 17.0% of revenue.

As mentioned last quarter, certain projects include costs for additions or improvements to our infrastructure that are necessary to fabricate and complete a project. Since these additions or improvements provide future benefit to us, the cost to build these projects is capitalized. Thus costs removed from project costs as subsequently capitalized, directly increases the estimated profit on the project.

There were no amounts included in project revenue that were capitalized in the quarter ended June 30, 2009 compared to $2.6 million of project revenue that was capitalized in the quarter ended June 30, 2008. The amount included in project revenue mentioned above will capitalize on net of depreciation expense.

General and administrative expenses were $2.0 million, or 2.5% of revenue compared to $2.6 million or 2.2% of revenue.

Operating income was $6.4 million compared to $17.5 million.

We had net interest expense of $18,000 compared to net interest income of $29,000. During the quarter cash available to invest and interest rates were lower.

Other income expense were gains of $2,000 and $5,000, respectively. Activity for both periods was for the sale of miscellaneous equipment.

Income before taxes were $6.4 million compared to $17.5 million. Income tax expense was $2.3 million compared to $5.7 million. The income tax rates were $36.8 million compared to $32.3 million. The change in tax rates were related to limitations on certain federal manufacturing tax credits and an increase in the state tax apportionment caused by a greater portion of our revenue being related to towboat fabrication, a post to offshore fabrication.

We currently expect tax rates to be 35.5% to 36.5% for the remainder of the year.

Net income was $4.0 million compared to $11.9 million.

Basic earnings per share was $0.28 compared to $0.83. Diluted earnings per share were $0.28 compared to $0.83. Weighted average shares and adjusted weighted average shares was 14.3 million for all periods.

Depreciation expense was $4.6 million compared to $4.3 million.

We declared and paid cash dividends of $0.01 per share for the quarter ended June 30, 2009 compared to $0.10 for the quarter ended June 30, 2008.

The following are the results of operations for the six months ended June 30, 2009 compared to June 30, 2008.

Revenue was $164.1 million compared to $241.7 million. The cost of revenue was $144.0 million compared to $198.4 million.

Gross margin was $20.1 million, or 12.2% of revenue, compared to $43.3 million or 17.9% of revenue.

Capitalized cost net depreciation included in project revenue were $1.3 million compared to $5.6 million.

General and administrative expenses were $4.2 million or 2.6% of revenue compared to $5.3 million or 2.2% of revenue.

Operating income was $15.9 million compared to $38.0 million.

We had net interest expense of $15,000 compared to net interest income of $132,000. Again, the cash available for investing and the interest rates were lower.

Other income expense were a gain of $2,000 compared to a loss of $55,000 respectively. Results for both periods were for the sale of miscellaneous equipment.

Income before taxes was $15.9 million compared to $38.1 million. Income tax expense was $5.7 million compared to $12.8 million. Income tax rates were 35.7% compared to 33.5%.

Net income was $10.2 million compared to $25.3 million.

Basic earnings per share were $0.71 cents compared to $1.78. Diluted earnings per were $0.71 compared to $1.77. Weighted average shares outstanding were 14.3 million compared to 14.2 million. Adjusted weighted shares outstanding were 14.3 million compared to 14.3 million.

Depreciation expense was $9.1 million compared to depreciation expense of $8.4 million.

We declared and paid cash dividends of $0.11 per share for the six months ended June 30, 2009 and $0.20 for the six months ended June 30, 2008.

Please refer to page one of the press release for a review.

We had a revenue backlog of $159.2 million with a labor backlog of 1.8 million man-hours remaining of work.

In past quarters we included $147.7 million and 1.6 million man-hours in the backlog that related to the MinDOC II project. Although not formally canceled, due to economic conditions it is not likely the MinDOC II project will return to active status in the near future.

The following represents selected balance sheet information for June 30, 2009 compared to December 31, 2008.

Cash and short-term investments were $14.2 million compared to $13.8 million.

Total current assets were $108.3 million compared to $136.4 million.

Property, plant and equipment was $203.1 million compared to $204.7 million.

Total assets were $329.5 million compared to $350.9 million.

Total current liabilities were $43.8 million compared to $74.9 million.

Long-term debt was zero for both periods.

Shareholders' equity was $263.1 million compared to $254.2 million. Total liabilities in shareholders' equity was $329.5 million compared to $350.9 million.

Other financial information for the three months ended June 30, 2009 compared to June 30, 2008 consists of --

Pass-through cost was 41.2% of revenue compared to 39.0% of revenue.

Man-hours worked were 791,000 compared to 1.0 million.

Deepwater revenue represented 36% of revenue compared to 65% of revenue.

Foreign revenue represented 2% of revenue compared to 12% of revenue.

Other financial information for the six months ended June 30, 2009 compared to June 30, 2008 consists of --

Pass-through cost was 38.4% of revenue compared to 39.4% of revenue.

Man-hours worked were 1.6 million compared to 2.0 million.

Deepwater revenue represented 41% of revenue compared to 69% of revenue.

Foreign revenue represented 2% of revenue compared to 19% of revenue.

Other financial information for June 30, 2009 compared to December 31, 2008 consists of --

Revenue backlog was $159.2 million compared to $209.8 million.

Remaining man-hours to work was 1.8 million compared to 2.3 million.

Revenue backlog for deepwater was $27.4 million or 17.2% compared to $50.4 million or 24.0%.

Revenue for foreign locations was $1.2 million or 0.7% compared to $1.5 million or 0.4%.

Of the backlog at June 30, 2009, we expect to recognize revenues of approximately $113.2 million during the remainder of 2009 and approximately $46.0 million in 2010, thereafter. All prior period backlog numbers were adjusted for the MinDOC II project.

We had approximately 1,550 employees and 20 contract employees compared to 1,850 employees and 150 contract employees.

CapEx for the first six months of 2009 was $8.0 million. The Board approved CapEx for the remainder of 2009 at approximately $8.8 million, which includes $6.6 million on the dry dock for our Houma facility.

On July 15, 2009 we reached an agreement with Bluewater Industries on the restructuring of payment terms for the remainder of the amounts owed on the MinDOC I on project. Bluewater is an engineering consulting firm which has contracted with ATP to oversee the fabrication of the MinDOC I hull and topside.

The amount currently owed to us on the project is $64.5 million. Based on current estimates, an additional $25.5 million is expected to be billed on the project through completion, which is expected to occur late third or early fourth quarter 2009.

Bluewater will pay $42 million of the amount owed in seven equal installments of $6 million each, commencing on September 5, 2009 and continuing on the fifth day of each calendar month through March 5, 2010. Any such installment which is not paid when due shall bear interest as provided in the master service agreement between Bluewater and us.

Bluewater will pay $48 million of remaining amount owed by the execution and delivery to us of an assignment of farmout rights and overriding royalty interest between Bluewater and us, pursuant to Bluewater assigning to us Bluewater's right, title and interest under a conveyance of overriding royalty interest between ATP and Bluewater.

It is projected that we should start receiving royalty payments in February of 2010 and anticipated that the entire $48 million will be paid over a 13-month period. Production volumes used in the projections with derived from independent petroleum engineering reserve reports. Prices for oil and gas were estimated based on strip prices in effect in mid June 2009. Our final estimated contract price on these projects have been discounted using present value calculations based on an interest rate ranging from 10% to 18%.

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

(Operator Instructions). Joe Gibney, [Cap] One Southcoast.

Just wanted to follow up on your inbounds for the quarter. Last quarter you had referenced some potential government-sponsored dry dock work. You guys' union, paying a lot -- some incremental welding work on the floodgate side. Did some of that transpire in your implied order flow for this quarter?

We were awarded two small dry docks through the Terrebonne Port Commission that will be run through our panel line. And we have bid another one at this point in time, and we anticipate within the next few months they will probably -- these floodgates we are talking about should be out for bid sometimes late third quarter, early fourth quarter.

So you think there could be -- there's some more work behind this initial three that you're talking about now?

Well, the floodgates. But the dry docks might be finished. There's one more dry dock that has been bid, but it has not been awarded to anybody. And so we're waiting to see the outcome of that particular dry dock.

And then Robin, you detailed some details there on MinDOC I. I was just curious if you could just touch on your existing backlog now as it stands, of $159 million, what portion of that is MinDOC I? If you'd run that, I would appreciate it.

I'm not quite sure what's left on MinDOC I. Actually if I gave you a number, it would probably be distorted, because what we did was we have to -- we did this present value calculation to back out -- or adjusted our contract price based on the new terms we have with Bluewater/ATP.

But out of the $159 million I can say that we have that new -- the two new dry docks in there, and we will probably have still about $75 million left on towboats. And the rest of it is going to be MinDOC. We still have the E&I project. And then Dolphin has a few things here and there.

Just for general information, the MinDOC hull will probably be leaving our facility in Texas somewhere around the 1st of October. All right. And the topsides, probably shortly thereafter from Houma. So we are winding down on those projects right now.

This fab work on the dry dock side and potentially on the floodgate side, is this stuff that you guys can complete within a year, or is this a multi-year process, or what's the time frame on that?

It will be a year or less.

Very helpful, I'll turn it back. Thank you.

Joe Agular, Johnson Rice & Company.

I guess I wanted to ask a question regarding sort of the market outlook right now. Since the last call you all have had, obviously oil prices have improved pretty substantially. Now, I know there is a segment of your customer base that is not the really -- not necessarily well-capitalized, but kind of in the bigger company segment of the market, the super majors or what have you, with oil prices up, steel costs down, is there any movement whatsoever to maybe look at starting up some of these projects that they might have been considering a year ago?

I think some are still in the feed stage, in the planning stage. We know of three possible projects that could be bid between now, year end, or first quarter of next year. But -- and there's three deepwater projects that we are tracking at this point in time.

Those are Gulf of Mexico?

Yes.

Kerry, could you -- obviously the whole improvements that you've made to your yard in Texas, how is that from a competitive standpoint positioning you guys for some of these next rounds -- next round of work that's going to be let?

Well, we hope it positions us quite well, as you indicated. We have spent quite a bit of money, and we are upgrading some of our equipment during this slack time. We are not spending a lot of money, but we have been upgrading. And we continue to do that.

And that graving dock gives us a heck of an asset going forward to be able to build some larger even hull-type structures in that particular dock. And we are looking at different options of what can be built into it, as well as we've taken on some new product lines.

Like I've said, we've taken on dry docks, we're taking on -- we are building a lot more pressure vessels for barges, these very large pressure vessels that are actually carry liquid propane up and down the intercoastal and the Mississippi River.

So we are doing other things in our product line, now granted, not as big as what we used to on the offshore fabrication work, but it is filling the gap at this point in time to help make through this difficult time.

Right. So backlog and nontraditional work, you feel okay -- and again, it's not the best of times, but you feel pretty good for the next couple of quarters. And then (multiple speakers)

Well, let's put it like this, if it will keep the doors open, yes (multiple speakers) not a problem. But we are not going to see the amount of revenues that we've seen in the past. Needless to say, these projects are smaller projects, and it's going to keep quite a few of our key employees on the payroll for a while until we can pick up and get some additional work.

Yes. I guess I might as well just ask you. I know most of the estimates that are out there, pretty sharply lower over the next couple of quarters. So we are kind of anticipating that. But it sounds like you're -- as you said, keep the doors open or stay profitable is something you think could be achieved?

We are looking at that. Let's put it like this, we are looking at cash flow too. We have been staying out of our revolver, and we hope to continue to do that. And that's one of our main goals is to make sure we have liquidity so when this market picks up that we can come back and be able to have the working capital we need to buy material and go forward and increase our workload.

I'll jump off, and I have a couple more, but I'll queue back in. Thanks.

Brian Uhlmer, Pritchard Capital.

Good morning. I just had a couple quick questions on -- really on the boat business. I am just kind of curious what your outlook is on that. It's a smaller portion, but if you're increasing your market acceptance and possibly if that's -- how much that's going to help you move forward in the rest of the year?

Well, basically we are bidding additional marine type vessels, not necessarily boats at this particular point in time. We do have some clients that are inquiring about boats, different types, not only towboats, but we are looking at the possibility of jack-up construction barges and boats, as well as just regular barges, dry docks and things of that nature.

And our dry dock should be operational around October of this year, and we are actively marketing that at this particular point in time to be able to do repair work on some of these vessels that either are either offshore or inshore. It's a sizable dry dock, and it can pick up most of the boats that are operating in the Gulf of Mexico as well as on the rivers and lakes and bays.

Good stuff. So you're not excluded really from any of that repair work that's available. Is that decent margin work?

We would hope so. We've (multiple speakers) been getting a decent margin. But it hasn't been -- the margins haven't been traditionally as good as we've seen in the fabrication side. But again, it keeps us going for a period of time, and it bridges the gap until we can get additional offshore fabrication work.

Good deal. Thanks, appreciate it guys.

Jim Rollyson, Raymond James.

Kerry, just to follow up on the last couple of questions. It sounds like you're going to keep business going for the next couple of quarters but maybe revenues drop off from what you have been doing. And you mentioned margins on some of these other projects not being up to par necessarily with traditional fab work. But do you kind of sense that margins are going to hold up okay, similar to what you did say this quarter, some in your -- last year you guys were knocking the cover off the ball, and obviously we are not going to expect that, but are we looking at kind of do you think high single digits, low double-digit margins for the rest of the year with the work you're looking at lining up?

Jim, I think our margins -- as we wind down on some of this offshore fabrication work, needless to say our margins should come down. We don't know at this point in time how far they will come down. But I would hope we would have some margins in our work, and we are working towards that.

From a cost standpoint, you guys have worked down the SG&A. Robin, are you thinking that's a sustainable number, or is there still more to come down there, do you think?

It could come down a little bit. But we don't expect it to come down much more.

Then last question, when you get into receiving the royalty payments you mentioned that startup in February, how are you going to present that information as far as financial? Where do you report -- how do you report that?

What's going to happen is, we've calculated that if we did a present value calculation on what we are going to cap our contract price as, until we get to that number, it will just run through as contract revenue, and then the discounted portion will be realized on the tail end of the payment schedule of more of a other income type.

Very good, thanks guys.

Katherine Schmidt, Houma Courier.

Good morning. I just had a couple questions as well. In looking at some of the additional financial information, it does look like you folks are working with fewer employees here. I was going to say, can you tell me a little bit about where those reductions have come, and if you could tell me those numbers one more time?

The reductions have come basically from attrition. Gulf Island basically has come from about 2,000 employees in total down to a little under 1600 employees by the end of June. So -- but basically that's been through attrition.

And those folks -- have they been in the fab division, or in the services, or whereabouts in the company did that come from?

It's been across the board, pretty much the reductions. Needless to say, Texas has probably had larger reductions than Louisiana, but basically it's been all our companies across the board, except our Gulf Island Marine Fabricators; we are trying to expand that.

And so are you folks hiring over there?

We are hiring the right skill set at this particular point in time, but we also are transferring employees from one company to another. But there are certain skill sets that we need at this point in time, mainly piping, skilled piping fitters and welders. So you can give us a little advertisement in the Houma Courier that we are hiring pipefitters and pipe welders.

All right, thank you.

(Operator Instructions). Joe Agular, Johnson Rice & Company.

Kerry, I wanted to circle back to the -- you mentioned three projects out there in feed study. Do you have any guess as to when something -- one or any of those might be awarded?

I think the earliest to be awarded would be the fourth quarter. More likely the first quarter of next year.

Just in a general sense, would those be customers that are larger? And maybe also are they customers that you have done business with in the past?

Both.

Then the other question I had, in terms of deepwater development of the Gulf of Mexico. You mentioned obviously that you're looking at what you might build in your yard, what types of facilities and so forth. I'm just curious as to what in general right now the customers are thinking in terms of what -- I guess it varies company by company, but whether these would be more semi-submersible type floaters, or would they be a spar, or --? I'm just kind of curious as to what the people are thinking out there in the market today.

I don't think there is any definitive answer to that, to be honest with you. They're looking at all different concepts. And we are looking also at engineering type companies that are developing new concepts. So everybody is looking at everything right now, and I don't think there's any definitive concept that would take precedence over another.

When you look at -- is it simple -- just taking the price of steel today versus where it was a year ago or a hear and a half ago and taking that decrease, I don't know on the cost side in your -- in the yards bid, let's say with the work that you do, how much cost pricing has changed. But can you give us a rough idea of what a structure today might cost one of your customers versus a year ago? I mean just in percentage decrease. Are we down 20%?

If we look at steel, prices are probably down around 40%. So if that's half of your project, 20% would be a pretty good number. Of course our clients beat us up pretty bad when they award a contract, so -- but 20%, based on steel being 50% of a structure, would be a realistic number.

Yes. That's what I was thinking. Thanks Kerry.

It appears we have no further questions at this time. I'd like to turn the call back to our speakers for any additional or closing remarks.

No. Appreciate everybody joining us today, and we will be back next quarter. Thank y'all.

Once again, that does conclude today's call. We do appreciate your participation.