Gulf Island Fabrication Inc (GIFI) 2010 Q2 法說會逐字稿

Good morning, and welcome ladies and gentlemen to the Gulf Island Fabrication, Inc., 2010 second-quarter earnings release conference call. (Operator Instructions). This call is being recorded.

At this time I would like to turn the conference over to Ms. Deborah Kern-Knoblock. Please go ahead, ma'am.

I would like to welcome everyone to Gulf Island Fabrication's 2010 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 8, 2010. The 10-K was included as part of the company's 2009 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, 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 second quarter of 2010. The press release consists of two pages. Page 1 is text. Page 2 is the income statement. I would like to review page 2, which is the income statement, first.

The following are the results of operations for the three months ended June 30, 2010, compared to the three months ended June 30, 2009.

Revenue was $75.3 million compared to $79.1 million.

Cost of revenue was $68.6 million compared to $70.8 million.

Gross margin was $6.7 million or 8.9% of revenue, compared to $8.3 million or 10.5% of revenue.

The largest contributing factor causing a reduction in our margins was the decrease in billable man-hours due to the temporary reduction in our work volume at our Texas facility. The current low level of production man-hours is not allowing us to cover certain fixed costs at our Texas facility. Although we've taken steps to reduce costs at the facility while waiting for the award of some larger oil and gas projects, certain fixed costs cannot be eliminated.

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

Operating income was $4.7 million compared to $6.4 million.

We had net interest income of $328,000 for the three months ended June 30, 2010, compared to net interest expense of $18,000 for the three months ended June 30, 2009. The increase in net interest income is primarily related to the accretion of the discount associated with the financing arrangement with Bluewater and ATP on the fabrication of the MinDOC hull.

Other income expense was a $285,000 gain resulting from additional settlements of claims related to damages incurred in connection with the hurricanes which hit the Gulf Coast in 2008. All claims related to 2008 hurricane damages have been settled.

Income before taxes was $5.4 million compared to $6.4 million.

Income tax expense was $1.9 million compared to $2.3 million.

Income tax rates were 36.0% compared to 36.8%. We currently anticipate tax rates to be 36% to 37% for the remainder of the year.

Net income was $3.4 million compared to $4.0 million.

Basic and diluted earnings-per-share were $0.24 compared to basic and diluted earnings per share of $0.28.

Weighted average shares and adjusted weighted average shares outstanding were 14.3 million for both periods.

Depreciation expense was $4.8 million compared to depreciation expense of $4.6 million.

We declared and paid dividends of $0.01 per share for both periods, ending June 30, 2010 and 2009.

The following are the results of operations for the six months ended June 30, 2010 compared to June 30, 2009.

Revenue was $144.5 million compared to $164.1 million.

Cost of revenue was $130.4 million compared to $144.0 million.

Gross margin was $14.2 million or 9.8% of revenue, compared to $20.1 million or 12.2% of revenue.

General and administrative expenses were $4.1 million or 2.8% of revenue, compared to $4.2 million or 2.6% of revenue.

Operating income was $10.1 million compared to $15.9 million.

We had net interest income of $1.3 million compared to net interest expense of $15,000. Again, the increase in net interest income is primarily related to the accretion of the discount associated with the financing arrangement we have with Bluewater and ATP on the MinDOC hull.

Other income expense was a $1.0 million gain, which was the result of the cumulative settlements for the hurricane damages. That compares to a gain of $2,000 we had for the previous six months related to the sale of miscellaneous equipment.

Income before taxes was $12.4 million compared to $15.9 million.

Income tax expense was $4.5 million compared to $5.7 million.

Income tax rates were 36.3% compared to 35.8%.

Net income was $7.9 million compared to $10.2 million.

Basic earnings per share were $0.55 compared to $0.71.

Diluted earnings per share was $0.55 compared to $0.71.

Weighted average shares outstanding were 14.3 million for both periods. Adjusted weighted average shares outstanding were 14.3 million for both periods.

Depreciation expense was $9.6 million compared to depreciation expense of $9.1 million.

We declared and paid a cash dividend of $0.02 per share for the six months ended June 30, and $0.11 for the six months ended June 30, 2009.

Please refer to page 1 of the press release for review.

We had a revenue backlog of $125.8 million, with a labor backlog of 1.3 million man-hours remaining to work.

The following represents selected balance sheet information for June 30, 2010, compared to December 31, 2009.

Cash and short-term investments were $31.0 million compared to $8.8 million.

Total current assets were $111.0 million compared to $112.9 million.

PP&E net of depreciation was $198.9 million compared to $200.5 million.

Total assets were $343.0 million compared to $332.2 million.

Total current liabilities were $34.9 million compared to $32.4 million.

Long-term debt was zero for both periods.

Shareholder equity was $281.9 million compared to $273.8 million.

Total liabilities and shareholders' equity was $343.0 million compared to $332.2 million.

Other financial information for June 30, 2010, compared to June 30, 2009, consists of --

Pass-through costs was 43.7% of revenue compared to 41.2% of revenue.

Man-hours worked was 672,000 compared to 791,000.

Deepwater revenue represented 5% of revenue compared to 36% of revenue.

Foreign revenue represented less than 1% of revenue, and that compares to 2% of revenue for the prior period.

Other financial information for June 30, 2010, compared to December 31, 2009, consists of, again --

Revenue backlog was $125.8 million compared to $136.8 million.

Remaining man-hours to work was 1.3 million, which compares to 1.5 million.

Revenue backlog for Deepwater was $1.9 million or 1.5%, and that compared to $7.7 million or 5.6%.

Revenue backlog for foreign locations was $37.7 million or 30.0%, and we had none of foreign backlog at December 31, 2009.

Of the backlog at June 30, 2010, we expect to recognize revenue of approximately $78.8 million, not including any change orders, scope growth, or new contracts that may be awarded during the remainder of 2010, and approximately $47.0 million of backlog is expected to be recognized as revenue in 2011 and thereafter.

We had approximately 1,340 employees and 40 contract employees. That compared to 1,395 employees and 50 contract employees.

CapEx for the first six months of 2010 was $8.1 million. CapEx for the remainder of 2010 is approximately $10.8 million, which includes $1.5 million remaining to spend on our gate for our graving dock located at our Gulf Marine facility in South Texas. It also includes $2.2 million remaining to spend for the fab shop and warehouse on the west shore of Gulf Island facilities to further expand our marine and construction repair act today.

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

(Operator Instructions). Martin Malloy, Johnson Rice.

Could you talk a little bit about what you're hearing from the customers regarding some of the deepwater projects in the Gulf of Mexico? Timing of when they might go forward?

We've been in contact with most of them that have bids or potential bids coming out, and the indication we're getting from our clients are that they are going ahead with these particular projects. They are not withholding these projects, and what I'm talking about is the fabrication development phase of these projects.

The exploratory drilling has already been performed on several locations, and drilling is not required again probably for next -- another two years, so a permit would not be required, and this will be the time frame it would take to build some of these very large platforms for the deepwater.

So the indication we're getting is that these projects will move forward.

In terms of bidding outside the Gulf of Mexico, are there any active bidding opportunities in the North Sea or elsewhere?

Yes, we are bidding a project in the North Sea now. We are also bidding a nice project for West Africa at this point in time.

Brian Uhlmer, Pritchard Capital.

I may have missed this. You ran through it pretty quick, but on the Bluewater stuff, it seemed like the interest income was a little lighter than I would've anticipated. What's the status of that? Is that all paid off? Or -- you're not recognizing interest. And what should we expect?

No, no. When we made the arrangement with Bluewater, when we set the receivable up, we had a certain portion that we had to discount, and then that discount gets accreted into interest income over time, and you actually -- at the end of every quarter we recalculate that to try to closely match an effective interest calculation and/or sort of match the income stream that we are receiving against the interest income that we are recording on the books. And they just had some issues that delayed production for a few months. So that's kind of why it was probably a little bit lower than maybe anticipated.

Right, so we should expect that in this quarter, but then it should get back to where it needs to be as (multiple speakers)

It could. We look at it every month. We look at the future income stream every quarter. We look and see how long it takes for it to -- how long we think it's going to take to pay out sort of, and then we try to work that into the model we have to recognize the interest income, similar to how we anticipate receiving the income from the production. If production changes than the amount changes.

Absolutely. I got it.

I mean up or down.

Following up, can you give a better breakdown of what constituted the makeup of your orders this quarter? And what -- kind of going forward outside of the big projects that may be coming up, what we should use to possibly predict or look at orders going forward outside of those big projects?

Well, the bulk of our backlog -- I can't give you specific numbers, but the bulk of our backlog is marine type orders, and that's what we're going to be working on for the next quarter and probably well into the fourth quarter, until possibly some of these larger projects would hit the marketplace.

Three large deepwater projects have been bid. The bids are being evaluated, and we are waiting on those particular projects to see if we were successful or not. So at this point in time I can't give you any more information on these large projects.

We also see a few -- a couple of shelf projects coming out to bid, which we haven't seen any of that to any significance in quite some time, so we are seeing a little activity on the shelf. And also, as I mentioned, there's some nice projects for West Africa and there are a couple of projects we're looking at for the North Sea.

Interesting. Thank you gentlemen. I'll turn it over to the next guy.

Joe Gibney, Capital One Southcoast.

I just wanted to touch on a little bit in terms of prospects that are in backlog now. Did you guys commence much work on the 335 lift boat or the OSVs that you recently booked? Or is that more of a beginning burn rate on that in the back half of this year and early '11?

Yes, it would be the back half of this year and early '11. We have started work on it, on that particular boat, and it's really in its infancy right now. We're basically working on the superstructure at this point in time.

Okay. There is no material revenue contribution from that in the second quarter, though?

That's correct.

All right. That's helpful. Just the project in West Africa, can you give a little more detail there, what type of work this is that you guys are looking at, to the extent that you can?

Well, it would be some very large topsides and possibly a couple of jackets.

Okay. That's helpful. All right. A last one from me, just on the sequential margin side you guys are certainly working on reducing costs at Ingleside. Last quarter was aided by some change orders and some project scope and favorable weather. What are your thoughts on 3Q? And how are things shaping up so far quarter to date weather-wise? And how should we think about margins I guess in the third quarter?

Well, in the third quarter, [needless to say], in my opinion will be probably our toughest quarter that we are going to have. We don't have a tremendous amount of work down in South Texas, and that probably will not turn around or change until probably the end of the year. So until we can get some significant work down in South Texas, we are going to be in a very low production mode in that facility. And that's going to drag on our earnings in the next couple of quarters.

In Louisiana we do have the marine work, but we don't really have a lot of oil and gas work in our facility at this point in time. The bulk of the last major project in oil and gas left our facility in May. So we are waiting to secure some additional oil and gas work. But in the meantime we are keeping all our people busy in Louisiana on marine type work, and we are actually bringing some of our employees in from Texas and housing them in Louisiana to do some of that work also.

Helpful. I appreciate it guys. I'll turn it back.

Jim Rollyson, Raymond James.

I assume that the projects that you are working on bidding, some of these larger deals, are at this stage not going to really -- even if you win awards, is this probably mostly '11, 2011 startups?

That's correct. It would be the startup probably first quarter in '11.

And so obviously, as you kind of said, you're going to be a little bit soft down in South Texas until you start getting there.

The gate -- how far are you from completion there? And have you started getting any interest from people to start doing some work down there on -- in that front?

Jim, we are completing a project down in Texas right now that's basically a very large lifting type -- floating/lifting type system, and we almost finished that. What we've done is we've diverted our labor that was working on the gate to complete that lifting system. There are some advantages for us to make sure we complete that lifting system in the -- within the specified time allotment that we have. So we are concentrating on that right now.

We will get back on the gate probably in the next couple of weeks, and I really believe the gate would be ready sometimes in late September or early October. And that's kind of what we're looking at.

We are getting inquiries for the graving dock. Nothing specific. But we are working on proposals at this point in time for -- but mainly for new construction in the graving dock more so than repair work. But we are getting some inquiries, but not specific to where we actually are bidding on something to do a quick turnaround dry docking. But most of it is for a little longer-term fabrication type project.

Is there any possibility of getting some of that starting up before year end, or is that probably going to move into next year as well?

I think it's going to move into 2011.

Well, appreciate the call. Thanks.

(Operator Instructions). Will Gabrielski, Gleacher.

Just a few questions. Most of my questions were asked and answered. I wonder if -- it's good that you're seeing some shelf opportunities come up. But given what's going on in the Gulf of Mexico, [and] you guys had any time to think strategically about other market opportunities that can utilize your fab space, and give us an update maybe where you are with that?

We are looking at just about everything we can right now. Of course, the more imminent situation is to keep moving more into the marine side of the business, and that was our plans all along. But we do see the oil and gas picking up.

But we are looking at of course components of wind farms offshore. We're actually doing some studies on some thermal gradient type platforms, and you name it, so we are looking at quite a few other opportunities that may arise. But of course, these type of opportunities take a long time, and the permitting process for these potential clients is very difficult, and it's very difficult to estimate when they might come to fruition.

Maybe an update, what you are seeing, tow boats and barges and those types of opportunities, and -- but what the outlook would be there? It's a tough market for me obviously to size up. You guys have a good view.

Well, we do have. We were able to contract some pretty good marine type work. Besides the tow boats -- we initially had the nine boats -- we've delivered five of them. We still have four more to build. But you know, we're building dry docks right now. We're building a 335 foot leg lift boat. We're working on the repair side of our business, which is pretty active. We're keeping our dry dock real active and pursuing that as much as we can, as well as I mentioned two Iraqi boats that we have under contract that we're going to actually get started on here in the near future, we hope. We hope to get final go-ahead on the design and order all the material and get cranking on that.

Otherwise, out in the marketplace there's continued to be bids, specifically from the Corps of Engineers. The government always has money and likes to spend money, so we are constantly looking at those opportunities, as well as Iraqi boats are actually being contracted through the U.S. Navy. So we are constantly looking at government contracting as well as commercial type plays, and we are getting inquiries still from commercial type plays. We're not getting as many inquiries for supply boats, needless to say, but we are getting inquiries from other industries.

Okay. And then just lastly, I guess, we know where your capital budget is this year. Looking at the 2011, you're obviously going to be picking up a fair amount of cash between now and then. Any thoughts about what you're going to do with that money in terms of deploying it?

Well, I think the Board is going to talk about that possibly today. But we wanted to maintain a very strong balance sheet going forward. When our work decreases, we generate cash. When our work increases, we need cash for working capital needs. So we're going to evaluate that, and the Board will discuss that at a later date to see, as we generate cash and what our marketplace looks like and what we're going to do.

But the first priority is to maintain a very strong balance sheet.

Jeff Spittel, Madison Williams.

Just wanted to follow up I guess with some of the work that you're doing on the gate system and the lifting system and I guess get a little bit more specific there. Have you gotten any indications of interest for dry docking? I think maybe on the last call you'd talked about having the capability to bring some semi's in there. Have you seen any of that, given what's going on in the Gulf?

No, we haven't. We haven't seen any deepwater drilling rigs moving our way.

In terms of asset acquisitions, seeing anything out there that's interesting, potentially in distress that might be on your shopping list?

Well, we can't comment on anything in that sense. We're always looking, by the way. Until we have something, we can't tell you.

Sure, sure. Understood. And then with regard to the North Sea opportunity, any chance you could give us any more color about the nature of that job, general scope, parameters, etc.?

It's some topsides and jackets for the North Sea off of Norway. And of course, that's in the bid cycle right now, so we have a little ways to go before we get too involved in giving you more details.

That's all I had. I'll turn it back. Thanks guys.

We do have one final question in the queue. Brian Uhlmer, Pritchard Capital.

I just wanted to follow up. There is one big project out there that you-all are bidding on that -- the feed is done, the contractor is talking about moving into detailed engineering, and most of the holes are drilled, and so we're just trying to figure out, should an award for that becoming? Should we expect that this quarter?

Well, we can't give you anything definitive on that right now, and we don't talk about rumors and everything else out in the market. We have bid on three very large projects, deepwater projects, for the Gulf of Mexico, and we don't have the results on those yet. So hopefully that will be forthcoming in the third quarter or possibly slide into the fourth quarter, but we would hope a decision would be made on those projects in the third quarter.

I guess that's the best I'm going to get. (laughter) I took a shot. Thanks.

Blake Hutchinson, Howard Weil.

Sorry if you covered this. I'm trying -- can you give us an idea just as -- since backlog is down here a little bit, of what the kind of recurring revenue stream was for the quarter? I guess revenue that was non-backlog associated?

Well, if you -- the backlog is probably down from the last quarter of -- the probably $15 million or so, and revenue was $70 million. So -- yes, so the difference would be basically things that appeared either as new work or change orders to existing jobs that didn't burn the backlog one-to-one. I mean, there's always things out there that happens like that.

But nothing of any substance, or you would've noticed the difference in the backlog itself.

Okay. And then kind of a follow-up to that. In terms of the current backlog, do we envision most of that going out the door before year end?

No, no. We anticipate about $78 million that we are going to burn in the remainder of '10, and then the balance, which I think is about $47 million, would be '11 and thereafter. Yes, $78.8 million would be what we think we are going to burn in 2010.

That's all I had. Appreciate it.

Ladies and gentlemen, this does conclude today's conference call. We appreciate your participation. You may disconnect at this time.

Thank you.

Thanks.