Gulf Island Fabrication Inc (GIFI) 2009 Q3 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication Inc. 2009 third-quarter release conference call. (Operator Instructions). 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 Fabrication's 2009 third-quarter teleconference.

Please keep in mind that any statements made in this teleconference 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 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. Robin?

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

The following are the results of operations for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Revenue was $76.6 million, compared to $92.7 million. The cost of revenue was $65.4 million, compared to $86.3 million. Gross margin was $11.2 million, or 14.6% of revenue, compared to $6.3 million, or 9.6% of revenue.

As mentioned in prior quarters, certain projects include costs for additional improvements to our infrastructure that are necessary to fabricate or complete a project. Since additions or improvements provide future benefits to us, the cost to build these projects is capitalized. Thus, costs removed from project costs is subsequently capitalized directly increases the estimated profits on the project.

Related capitalized costs net of depreciation on those contracts was $605,000 in the quarter ended September 30, 2009. There were no amounts included in project revenue that were capitalized in the quarter ended September 30, 2008.

General and administrative expenses were $2.1 million, or 2.7% of revenue, compared to $2.1 million, or 2.2% of revenue.

Operating income was $9.2 million, compared to $4.2 million. We had net interest income of $58,000, compared to net interest income of $24,000. Other income was a gain of $2,000, compared to a loss of $42,000 when comparing 2009 to 2008.

Activity for both periods were related to the sales of miscellaneous equipment.

Income before taxes was $9.2 million, compared to $4.2 million. Income tax expense was $3.2 million, compared to $1.4 million. The income tax rates were 35.1%, compared to 32.8%. 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 tow boat fabrication.

We currently expect our tax rates to be 35.5% to 36% for the remainder of the year.

Net income was $6.0 million, compared to $2.8 million. Basic earnings per share were $0.41, compared to $0.20. Diluted earnings per share were $0.41, compared to $0.20. Weighted average shares and adjusted weighted average shares outstanding were 14.3 million shares for both periods.

Depreciation expense was $4.7 million, compared to $4.6 million. We declared and paid cash dividends of $0.01 per share for the quarter ended September 30, 2009, compared to $0.10 for the quarter ended September 30, 2008.

The following are the results of operations for the nine months ending September 30, 2009, compared to September 30, 2008. Revenue was $240.8 million, compared to $334.3 million. The cost of revenue was $209.4 million, compared to $284.7 million. Gross margin was $31.3 million, or 13% of revenue, compared to $49.6 million, or 14.8% of revenue.

Capitalized cost net of depreciation included in project revenue was $1.9 million, compared to $5.3 million. General and administrative expenses were $6.2 million, or 2.6% of revenue, compared to $7.3 million, or 2.2% of revenue.

Operating income was $25.1 million, compared to $42.2 million. We had net interest expense of $43,000, compared to net interest income of $156,000. Other income and expense were a gain of $4,000, compared to a loss of $97,000, respectively. Results for both those periods were, again, for the sale of miscellaneous equipment.

Income before tax was $25.1 million, compared to $42.3 million. Income tax expense was $8.9 million, compared to $14.1 million. Income tax rates were 35.5%, compared to 33.4%. Net income was $16.2 million, compared to $28.1 million.

Basic earnings per share were $1.12, compared to $1.97. Diluted earnings per share were $1.12, compared to $1.96. Weighted average shares and adjusted weighted average shares were 14.3 million shares for both periods.

Depreciation expense was $13.8 million, compared to depreciation expense of $13.0 million. We declared and paid cash dividends of $0.12 per share for the nine months ended September 30, 2009, and $0.30 for the September -- period ending September 30, 2008.

Please refer to page one of your press release. Our revenue backlog was $136.1 million, with a labor backlog of 1.5 million man-hours remaining to work. In the beginning of 2009, we removed $147.7 million and 1.6 million of man-hours that was in the backlog that related to the MinDOC II project. Although that project hadn't been formally canceled, due to economic conditions that project was put on hold.

The following represents selected balance-sheet information for September 30, 2009, as it compares to December 31 of 2008. Cash and short-term investments were $8.2 million, compared to $13.8 million. Current assets were $122.6 million, compared to $136.4 million.

Property, plant, and equipment was $202.5 million, compared to $204.7 million. Total assets were $338.5 million, compared to $330.9 million. Total current liabilities were $46.2 million, compared to $74.9 million.

Long-term debt was zero for both periods. Shareholders' equity was $269.2 million, compared to $254.2 million, and total liabilities and shareholders' equity was $338.5 million, compared to $350.9 million.

Other financial information for the three months ended September 30, 2009, compared to September 30, 2008, consist of passthrough costs was 32.3% of revenue, compared to 42.8% of revenue. Man-hours worked were 811,000, compared to 931,000.

Deepwater revenue represented 37% of revenue, compared to 88% of revenue. Foreign revenue represented less than 1% of revenue, compared to 24% of revenue.

Other financial information for the nine months ended September 30, 2009, as compared to September 30, 2008, consists of passthrough costs was 36.4% of revenue, compared to 40.4% of revenue. Man-hours worked were 2.5 million, compared to 2.9 million.

Deepwater revenue represented 40% of revenue, compared to 66% of revenue. Foreign revenue represented 1% of revenue, compared to 20% of revenue.

While the financial information for September 30, 2009, compared to December 31, 2008, consists of revenue backlog was $136.1 million, compared to $209.8 million. Remaining man-hours to work was 1.5 million, compared to 2.3 million.

Revenue backlog for Deepwater was $27.7 million, or 20.4%, compared to $50.4 million, or 24.0%. Revenue for foreign locations was $600,000, or 0.4%, compared to $1.5 million, or 0.4%.

Of the backlog at September 30, 2009, we expect to recognize revenue of approximately $72.8 million during the remainder of 2009 and approximately $63.3 million in 2010 and thereafter.

We have approximately 1,560 employees and 150 contract employees. That compares to 1,850 employees and 150 contract employees at December.

CapEx for the first nine months of 2009 was $12.1 million. The Board-approved CapEx for the remainder of 2009 was approximately $6.7 million, which includes $3.8 million for the drydock at our Houma facility.

Just a few more items. Last quarter, we mentioned that we had reached an agreement with Bluewater Industries to restructure our payment terms for the remainder of the amounts owed to us on the MinDOC project. Since then, we have received $12 million in payments, which is all in accordance with our agreement.

Also, at September 30, 2009, we had recorded one -- $6.1 million net of deductibles and other receivables related to two insurance claims that we have determined are recoverable costs under our various insurance policies.

One claim is for $5.9 million net of deductible, and relates to damages and related costs incurred in connection with an accident that occurred in April of 2008 at our Texas facility involving four cranes. Included in the claim are costs incurred by us to rent replacement cranes while our damaged cranes were repaired.

Our insurance provider has alleged that the amount recovered for crane rental costs is limited to $450,000 in the aggregate and has denied that it has any further obligation to pay us for damages and costs related to the crane accident. However, we believe all of our claims are fully recoverable under our insurance policies and we intend to vigorously pursue full reimbursement of those costs.

Teresa, you can now open up the line for questions from our analysts.

(Operator Instructions). Jim Rollyson, Raymond James & Associates.

This is going to sound like deja vu from most quarters because we always get to ask you the same stuff, but go ahead and ask. On the margin side, obviously this quarter was a pretty good performance, all things considered. What drove the margin upside this quarter and -- was it a cost factor? Was it some completed revenue bonus-type things, or just kind of what's driving that, and how do you see that going forward, given where the backlog level is?

Jim, what we've had during that quarter, usually the third quarter is when we complete projects, and normally you would have some change-order negotiations at that point in time, and we've had some change-order negotiations that were favorable.

And also, we did not have a hurricane during that time period, which aided us compared to last year when we had two hurricanes that we had to shut down for and had significant lost time.

So, those two events probably made up for most of the increase in the margin during the third quarter.

And MinDOC I, is that completed and out the door?

MinDOC I is floating. The dock is flooded. We are going to remove the gate at the end, starting today. It's scheduled to leave our facility right at the end of October.

It sounds like, from what Robin said on the backlog, your fourth-quarter revenue number is going to be somewhere similar. Still, I think you said, Robin, $72.8 million for 4Q or for the rest of 2009, which would be 4Q --

That's basically correct.

Okay, and then, for next year, you don't have a very big headstart on next year, assuming that MinDOC II doesn't come back into play. Can you kind of share with us what you're seeing on the bidding front?

And Kerry, you usually do a pretty good job of giving us the kind of timing of what you guys think today, and I recognize that can change, but kind of what you're seeing there.

Okay, Jim. Basically, we are tracking some Deepwater projects from the Gulf of Mexico at this point in time.

There's actually three projects that are being considered, and should -- or could be sanctioned sometime between now and the end of the first quarter of next year. So we're tracking those particular projects pretty heavily.

There is also two international projects that we are tracking because the Euro and the dollar has gotten so out of line. The dollar is weak and it makes us somewhat more attractive to build in the United States, rather than to build in Europe. So we have two projects on the international side that we are tracking pretty heavy.

And of course, we are also looking at several marine projects at this point in time that could come into play sometime between now and the end of the year. And for fabrication, sometime starting in the first quarter of next year.

So it sounds like there is opportunity there, and if I'm not mistaken, Kerry, the timing of that, you're -- it sounds like you're pretty well booked for 4Q, reasonably. 1Q might be a little bit softer, and then hopefully, some of this stuff, if you win some awards, starts up later 1Q, and really second, third, and fourth quarter of next year. Is that kind of what the landscape looks like today?

That's kind of what we hope for. There's no guarantee but we are kind of hoping that happens.

Then, just last kind of housekeeping question, a couple of them for Robin, maybe. You mentioned tax rate 35.5%, 36% for the rest of this year. Thoughts on next year for tax rate, and maybe just do you think G&A continues to run around $2 million a quarter?

I think we will try to do our best to manage G&A about the same as the quarters now, and as far as the tax rate, I think that's pretty much a good number for next year as well. 35.5% to 36%.

Great. Thank you, guys.

Joe Gibney, Capital One Southcoast Inc..

I just want to circle back on the backlog side of the story. In particular, Robin or Kerry, could you just give us, out of your end of the quarter close, $136 million revenue backlog, how much is left on the tow boats?

I'd say in the neighborhood of 50. $50 million.

Around $50 million. Okay. And how many have been actually thoroughly completed at this point? So what's the status update there?

Two have been delivered to the clients already, and we should have another one being delivered by year end, and so, about every two or three months we should be delivering a tow boat.

Okay. Perfect.

We have five under construction at this point in time.

Okay. Fair enough. And on the margin site, Jim touched on it. Relative to kind of where we are, shaping up seasonally, you had some -- looks like some favorable change-order negotiations, well understood. But typically fourth quarter tended to be a little bit slower.

I appreciate the revenue color on the burnthrough, but relative to holiday and seasonal downtime, etc., moving past any kind of hurricane noise, would you expect margins to kind of trend down a little bit sequentially as they normally do in the fourth quarter?

That's correct, Joe. We -- typically, like you say, we have a week downtime of vacation, and with the holidays you really lose anywhere from two to 2.5 weeks in the fourth quarter because of not being able to work.

So therefore, our overhead rate goes up, needless to say. And then in the first quarter, typically we have -- January is usually a bad weather month for us. Even though we invested heavily in our buildings to take some seasonality out of our business, we still have it.

When the temperatures get below 40 degrees or 50 degrees, we can't paint at that point in time, and if it gets around 30 degrees, we can't weld in the outdoors, so it typically slows us down, as well as the -- just the daylight hours are less during that timeframe.

Understood. Okay, appreciate it, and last one, on the CapEx side, you said $6.7 million left for the rest of this year, $12.1 million to date. Just running maybe a little bit ahead of where I was previously. I was kind of more in the $16 million range for the full year. Have things ticked up a little bit? Just maybe a little incremental color on what some of the extra spend is, or is this just a little bit extra flowthrough on the drydock?

Basically, the Board has authorized us to go ahead and spend about $4.5 million on a more portable gate on the end of the graving dock.

So that's -- we are in design right now, and should start fabrication on that in the near future. So that has been added to allow us to be able to do more -- quicker turnaround on getting vessels in and out of the graving dock. We are going to decrease our turnover time from about one month, six weeks, to probably about 1.5 days to two days to be able to get the drydock dry and be able to put something else in it, or vice versa, get it wet and move something else in.

So, it really is going to be a big plus for us. It allows us to do some shorter-term projects during the interim until we get some longer-term projects in the graving dock.

Good deal. I appreciate it, guys. Good quarter. I'll turn it back.

Brian Uhlmer, Pritchard Capital.

I just had one or two quick questions, really focusing on the boats and kind of what you guys saw for orders in this quarter. Was that driven by the marine segment and the boats, or was there something else in there?

It's a combination of several things, Brian. Certainly, the boats -- we have, like Kerry said, we have five under construction now and we think we are building those a little more efficient than we did on the first one.

Then we come in -- we're winding down on the MinDOC hull and the topside. So there's a few things going on with that, and then, that E&I project that we have, that big module of processing jobs that's going to Alaska, it's -- we're making a lot of progress on it.

They are trying to -- it's going to probably stay around here until probably the early second quarter. But because of other logistic issues, they are trying to get as much done as they can by the end of this year. So that's helping us out on progress.

You had a couple of lift boats in the yard. Are those -- have you been awarded work to do any work on those yet or are those still kind of on hold, waiting to see what the customer wants?

Those are on hold waiting to see what the client wants. I think the client, at this point in time, is doing some re-design before they proceed with the actual fabrication -- finish the fabrication on these boats. So, hopefully, we will be awarded that in the near future.

And that particular client, prior to last year, had a pretty aggressive program in place to build with those. Do you think you all will get more of that work with the closing of some of their facilities that they were building them at?

We are hoping to get several lift boats from several clients, not specifically just this one. And we are seeking that type of work for 2010 and beyond.

Okay, and you think that activity is looking fair, moderate? Can you kind of gauge where --

Well, let's put it like this. It's a little better than what it was for the last nine months. It's not -- I'd say it's fair right now, but hopefully it will pick up as we get into 2010.

Appreciate it. Thank you, gentlemen.

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

Kerry, I'm going to ask you a question that you're probably not going to want to hear, but I'm going to ask you anyway. It looks like your revenues this year are going to end up around $300 million, give or take a little bit either side. Looking at 2010, do you think you will be on pace to be at that level or would you expect to be maybe a little higher, a little lower?

You're right, Joe, I really don't want to answer that. Right now, it's really too uncertain to tell. We can't -- some of these projects have to get sanctioned and get out in the marketplace, and then we have to get some. So it's really, really early to be able to guess at what our revenues would be for next year.

Let me ask it this way, then. Some of these jobs that you all are bidding and waiting on, what would it take for you to be comfortable with getting back to either 2009 levels or getting ahead of them? In other words, would it take one of those five jobs you outlined? Would it take two?

Well, two would be helpful. Two would really get us in pretty good shape.

And I'm also curious, on the Deepwater jobs that you are bidding in the Gulf of Mexico, are you all looking -- are they -- are you bidding to build the entire facility or just the top sides? I'm asking because I'm curious if you all have convinced the customer that your capabilities of building hulls over in the Texas yard would allow them to do the work here instead of overseas.

We are getting inquiries on the hulls, needless to say, but primarily, I think we're being looked at for the top sides.

Okay. And the international jobs you mentioned, what type of jobs are those?

Those are jobs for the North Sea to replace some other platforms.

Okay, jacket and deck, or just deck?

[Hit tight] -- relatively shallow water.

I'm sorry, did you say it was jackets, also?

Yes, jackets. Relatively shallow water.

Okay. I appreciate it. Those were all the questions I had, Kerry. Thank you.

[Catherine Schmidt], [The Human Courier].

I wanted to ask about the employment levels. I was curious that in looking lower than it did last year. Have you folks had to do any layoffs or staff reductions, and do you anticipate doing so in the future?

Well, Catherine, the SEC precludes us from answering any forward-looking statements. So I can't tell you anything about the future. But we haven't had any recent layoffs.

Any in the past? (inaudible question - microphone inaccessible)

Not recent -- not in the recent past.

I know you folks were working on a drydock project for the Port of Terrebonne. How is that coming along?

It's coming along fine. Everything is on schedule and going just like we programmed it.

Do you guys have a date when you expect to be finished with that project?

It was around 18 months when we contracted it, so we probably have -- I'd say anywhere from 10 months to 11 months to go on that project.

And you mentioned the lift boats as additional potential business. Have you -- since you folks have offloaded those first couple of tow boats, have you been thinking about expanding into other additional types of ships?

Catherine, we're looking at all types of vessels and projects that are built out of steel. We don't preclude ourselves from doing anything. So, anything out of steel, whether it's a tow boat or supply boat or lift boat, we're looking at all types of vessels at this point in time.

Joe Agular, Johnson Rice & Company.

Kerry, I want to also ask you -- I think there's been some talk out there that the FPSO -- or I should say the floating production systems out in the Gulf of Mexico that may need shuttle tankers have to be Jones Act. I was just wondering if you all are looking at potentially doing anything on --

Yes, it's a level premature on that, Joe. But we have had inquiries probably out towards the year 2012. I don't think you'll see any shuttle tankers here in the next 18 months or so. But more towards 2012.

But that's something that you all would be competitive on in a bid situation?

We would hope so with our graving dock. We really have somewhat of an advantage to be able to pursue that type of activity. And we are looking at it. But again, that's at least 18 months down the road.

Catherine Schmidt.

Just very quickly, folks. In terms of the layoffs, when was the last time that one took place? You said not recently.

Catherine, it's been at least five years, six years, something like that. (multiple speakers) It's nothing that's happened recently.

(Multiple speakers). All right, I wasn't sure if it was the past couple of months or -- . All right. Thank you. That's all I

(Operator Instructions). And it does appear there are no further questions at this time. So I'll turn the call back over to our speakers for any closing or final remarks.

Just appreciate everybody joining in the conference call today. And we will see you all next quarter. Thank you all.

Ladies and gentlemen, a replay of today's conference is available beginning at noon today and running through October 28 at noon. To access the replay, please dial 888-203-1112 and reference passcode 724-7356. Once again, that's 888-203-1112. That does conclude today's conference. Thank you for your participation.