Gulf Island Fabrication Inc (GIFI) 2010 Q3 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication 2010 third quarter earnings release conference call. All participants will be in a listen-only mode for the duration of the presentation. 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 2010 third-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 10K 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 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 Siebert, our CFO. Robin?

Thank you, Deborah. Welcome, everyone. I'd like to review Gulf Island's press release issued for the third quarter of 2010. The press release consists of two pages. Page 1 is text, page 2 is an income statement, and I'd like to review page 2, which is the income statement, first.

The following are the results of operations for the three months ended September 30, 2010, compared to the three months ended September 30, 2009. Revenue was $60.7 million compared to $76.6 million. The cost of revenue was $53.8 million compared to $65.4 million. Gross margin was $6.9 million or 11.14% of revenue compared to $11.2 million or 14.6% of revenue.

The largest contributing factor causing a reduction margins continues to be the decrease in billable man hours due to the temporary reduction in 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 have taken steps to reduce costs at the facility while waiting on the award of some larger oil and gas fabrication projects, certain fixed costs cannot be eliminated.

General and administrative expenses were $2.0 million or 3.3% of revenue compared to $2.1 million or 2.7% of revenue. Operating income was $4.9 million compared to $9.2 million. We had net interest income of $1.0 million for the three months ended September 30, 2010, compared to net interest income of $58,000 for the three months ended September 30, 2009. 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 fabrication of the MinDOC one hull.

Other income and expense for the three months ended September 30, 2010 was a $23,000 gain compared to a $2000 gain for the three months ended September 30, 2009. Income before taxes was $6.0 million compared to $9.2 million. Income tax expense was $2.5 million compared to $3.2 million. Income tax rates were 42.2% compared to 35.1%. Net income was $3.5 million compared to $6.0 million. Basic and diluted earnings per share were $0.24 compared to basic and diluted earnings per share of $0.41. Weighted average and adjusted weighted average shares outstanding were 14.3 million shares for both periods. Depreciation expense was $4.8 million compared to depreciation expense of $4.7 million. We declared and paid cash dividends of $0.01 a share for both periods ended September 30, 2010 and 2009.

The following are the results of operations for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. Revenue was $205.3 million compared to $240.8 million. The cost of revenue was $184.2 million compared to $209.4 million. Gross margin was $21.1 million or 10.3% of revenue compared to $31.3 million or 13.0% of revenue. General and administrative expenses were $6.1 million or 3.0% of revenue compared to $6.2 million or 2.6% of revenue. Operating income was $15.0 million compared to $25.1 million. We had net interest income of $2.3 million compared to net interest income of $43,000. Again, the increase in interest income was related to the financing arrangement we have with Bluewater and ATP.

Other income and expense was a $1.1 million gain resulting from the settlement of claims related to damages incurred in connection with the hurricanes that hit the Gulf Coast during 2008. Other income and expense was a gain of $4000 resulting in the sale of miscellaneous equipment, respectively, when you compare 2010 to 2009. All claims related to damages incurred in connection with the hurricanes of 2008 have been settled.

Income before taxes was $18.4 million compared to $25.1 million. Income tax expense was $7.0 million compared to $8.9 million. Income tax rates were 38.0% compared to 35.5%. The increase on tax rates for 2010, both quarter and year-to-date when comparing to 2009 primarily relate to the federal work opportunity credits which were available to us in 2009 which are no longer available in 2010, a decrease in the federal qualified production activity income deduction due to a decrease in activity at our Texas facility, and we had an increase in Louisiana state income tax apportionments during 2010.

Net income was $11.4 million compared to $16.2 million. Both basic and diluted earnings per share were $0.79 compared to -- I'm sorry. Diluted earnings per share were $0.79 compared to $1.12 for 2009. Weighted average shares outstanding was 14.3 million for both periods. Weighted average -- adjusted weighted average outstanding were, again, 14.3 million for both periods.

Depreciation expense was $14.4 million compared to depreciation expense of $13.8 million. We declared and paid cash dividends of $0.03 per share for the nine months ended September 30, 2010, and $0.12 for the nine months ended September 30, 2009. I just wanted to mention that we anticipate our tax rate in the fourth quarter of 2010 to remain at 38%.

If you refer to page 1 on the press release, we had a revenue backlog of $140.3 million with a labor backlog of 1.4 million man hours remaining to work. Our backlog at September 30 does not include any amounts associated with the letter of authorization on the deepwater Gulf of Mexico project we received and announced on September 20, 2010.

The following information, which is selected balance sheet data as of September 30, 2010, compared to December 31 of 2009. Cash and short-term investments were $35.7 million compared to $8.8 million. Total current assets were $118.2 million compared to $112.9 million. Property, plant and equipment net of depreciation was $197.4 million compared to $200.5 million. Total assets were $343.7 million compared to $332.2 million. Total current liabilities were $31.6 million compared to $32.4 million. Long-term debt was zero for both periods. Shareholders equity was $285.4 million compared to $273.8 million. Total liabilities and shareholders equity was $343.7 million compared to $332.2 million.

Other financial information for the three months ended September 30, 2010, compared to September 30, 2009 consist of -- pass-through costs was 29.2% of revenue compared to 32.3% of revenue. Man hours worked was 625,000 compared to 811,000. Deepwater revenue represented 3% of revenue compared to 37% of revenue. Foreign revenue represented 3% of revenue compared to less than 1% of revenue.

Other financial information for the nine months ended September 30, 2010, as it compares to September 30, 2009 -- pass-through costs was 37.2% of revenue compared to 36.4% of revenue. Man hours worked was 2 million compared to 2.5 million. Deepwater revenue represented 8% of revenue compared to 40% of revenue. Foreign revenue represented 1% of revenue, and that compares to less than 1% of revenue.

Other financial information for September 30, 2010, compared to December 31, 2009 consists of, again, backlog was $140.3 million, which compares to $136.8 million; remaining hours to work, 1.4 million, which compared to 1.5 million. Revenue backlog for deepwater was $32.0 million, or 22.8%, compared to $7.7 million, or 5.6%. Revenue backlog for foreign locations was $38.6 million, or 27.5%, compared to none at December 31, 2009.

Of the backlog at September 30, 2010, we expect to recognize revenue of approximately $57.8 million not including change orders, scope growth or new contracts that may be awarded during the remainder of 2010, and approximately $82.5 million of backlog is expected to be recognized as revenue in 2011 and thereafter.

We had approximately 1250 employees and 15 contract employees, which compares to 1395 employees and 50 contract employees.

CapEx for the first nine months of 2010 was $11.4 million. CapEx for the remainder of 2010 is approximately $5.5 million, which includes $2.4 million remaining on the gate for our graving dock located at our Gulf Marine facility in South Texas. We also include about $1.3 million remaining for the fab shop and warehouse in the west yard of our Gulf Island facility, which we used to further expand the -- for our marine construction and repair business. We believe the enhancements to our Gulf Island Marine subsidiary will allow us to operate more efficiently by being more centralized, and as of a week ago, our Marine Group has moved in and is operating from their new facility on Gulf Island's west yard.

We now can open up the call to questions from the analysts.

(Operator instructions) Martin Malloy, Johnson Rice.

Good morning, congratulations on a nice quarter. Could you talk about what you're seeing out there in terms of the bidding environment for some of the deepwater Gulf of Mexico topsides?

Sure, Marty. Of course, we have bid several projects at this point in time. Let me count them. We bid one, two, three, four, five, six -- well, and one for shallow water -- six projects, at this point in time. Three of them we have gotten some indication that we have not been the successful bidder. However, we did make the announcement on our letter of authorization on potentially one that could be sanctioned in the very near future, and we also have three other bids outstanding at this point in time.

We also predict in 2011 there should be probably at least four deepwater topsides, should be bid for the Gulf of Mexico in 2011.

Okay, and could you talk about how this might impact, when you look at the second half of 2011, industry capacity along the Gulf Coast?

Well, I can give you our capacity if we pick up probably two additional projects besides the ones that we're waiting on. I'd say we'd be running probably at somewhere around 80%-90% capacity. I can't speak for the other fabricators, but I understand that they could pick up some of this work also.

Okay, and international opportunities that are out there? I think the past you've talked about the North Sea and West Africa.

We have bid two projects for the North Sea, and the bids are outstanding at this point in time and being evaluated. There have been no awards, as far as I know, on those projects at this point in time.

Okay, thank you very much.

[Ryan Barto], Raymond James.

Good morning, gentlemen, congratulations on the quarter. Just going into the Gulf of Mexico project, I know you guys can't really give too much color there, but I was just wondering, do you foresee any potential headwinds in delaying the start of the project, or is this going to be still likely a 2011 event?

We are hoping to get this project sanctioned in the fourth quarter of this year. Now, understanding that these deepwater projects, fabrication will not start on these -- on this particular project and the other potential projects until probably more near the second quarter of 2011. By the time you get awarded and order material and start fabrication, you won't see any revenues until second quarter of 2011.

So, needless to say, with that being said, typically our fourth and first quarters are pretty tough quarters because of several reasons. One, we don't have as many daylight hours. Typically, the weather is colder and you can't work quite as many hours during that time frame. So therefore, we expect that the fourth and first quarter of next year will be somewhat down for us, typically, as we've seen in previous years.

Okay, that's very helpful, thanks. And then my last question is regarding your graving docks. Are you guys seeing any real interest or any contracts or anything you guys can provide color on?

Well, we are still seeing some inquiries on it; no hard contracts at this point in time. But there's still some talk about it, about future projects, and we are continuing to pursue that. But there's nothing that we can share with you at this point in time.

Okay, very helpful, I'll turn it back over. Thank you, gentlemen.

(Operator instructions) Will Gabrielski, Gleacher.

Obviously, you had a very good quarter on the new awards front. I'm curious if you can give some color maybe what drove that, and how you feel about the margins on what you are booking right now.

Well, we are bidding on margins as we normally do. We're not dropping our margins at this point in time, but our philosophy has always been to let our competition take some of the cheap work at the beginning and try and come in on the backside and pick up some additional work at a little higher margin. We did pick up some smaller projects during the time frame, but nothing of real significance at this time. Of course, our threshold is $40 million before we actually would issue a press release on any work that we got awarded. So we did get some work awarded, and most of that work will be performed in 2011 and possibly 2012. Very little of that work awarded would be done in 2010.

If I go through what you said in terms of the opportunities in the Gulf of Mexico, you said there were five deepwater projects that you've already bid, one shallow water, and then there's four additional on top of that for 2011 that you think are possibly bid. Is that correct?

That's correct.

Okay, and then lastly, just in terms of utilizing your capacity in other ways, I think you've mentioned nuclear in the past as a potential opportunity. What's your current status in terms of exploring those opportunities?

Well, we're looking at everything right now, and there's nothing definitive. But we are looking at the wind projects offshore. We're looking at -- nuclear, I think, is going to be a lot further down the road than what people are expecting. So that's probably for two, three, maybe even four years down the road. Wind -- I think there's some viable wind projects on the East Coast, and there will have to be some roll goods and structures built for those particular projects. We are pursuing those projects at this point in time, and I think possibly in 2011 we might see some of these projects move forward.

Great, thank you so much.

(Operator instructions).

Katy, we can open it to anyone besides the analysts at this point in time, if we have anybody that wants to ask questions.

Will Gabrielski, Gleacher.

I was curious if you could just run through the ATP Bluewater payments, what's left, what you're hearing from ATP about production and how you see that flowing through over the next 12 months.

Basically, we -- the first well had been -- it's been producing a couple of months. The second well was recently completed. ATP reports it's making about 7000 barrels a day, which is what they projected originally. So we see that our payments that we anticipate receiving are pretty much tracking what we projected. We've received probably maybe a little over 3.5 million to date. And based on the fact that we are still unsure of the status of the completion of the last two wells now since the moratorium has lifted, maybe the chances of having those done will improve. But we are calculating right now that are payout would be in the approximate 24-month range, and that was based on doing it at the end of June. So we think it may be 20 months at this point, 21 months.

And that's just based on the first and second well producing at the projected volumes. The price of oil is a little higher than we originally projected, so everything looks good to stay on the track that we projected at the end of June, which is about a 20-month payout.

Okay, thank you very much.

(Operator instructions). We have no further questions in the queue at this time.

Okay, Katy, thank you. Thank everyone for participating, and we'll talk to you at the end of the fourth quarter.

That does conclude today's conference. A replay of today's call will be made available at 12 o'clock Central time today. You may listen to the replay through November 11 by dialing 888-203-1112 and entering passcode 114-2194. (Operator instructions). We thank you for your participation on today's conference.