Gulf Island Fabrication Inc (GIFI) 2010 Q4 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication, Incorporated 2010 fourth quarter earnings release conference call. All participant lines 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 fourth quarter teleconference. Please keep in mind that any statements made in this conference that are not statements of historical facts 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 price of the 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 fourth quarter of 2010. Please turn to page two of the press release to review first. The following are the results of operations for the three months ended December 31, 2010, compared to the three months ended December 31, 2009. Revenue was $43.0 million compared to $70.8 million. The cost of revenue was $40.8 million, compared to $62.6 million. Gross margin was $2.2 million, or 5% of revenue compared to $8.2 million, or 11.5% of revenue.

The largest contributing factor causing a reduction in margins continues to be the decrease in man-hours worked, mainly due to the temporary work reduction in our Texas facility. General & Administrative expenses were $1.9 million, or 4.3% of revenue compared to $2.0 million, or 2.8% of revenue, operating income was $300,000, compared to $6.1 million. We had net interest income of $2.7 million compared to net interest income of $943,000. The increase in the interest income is primarily related to the interest income recognized with respect to the financing arrangement we have with Bluewater and ATP on the fabrication of the MinDOC hull. On November 29, 2010, we sold our limited overriding royalty interest, consequently there will be no additional income to be recognized on that arrangement.

Income before taxes was $3.0 million compared to $7.0 million. Income tax expense was $1.3 million compared to $2.4 million. Income tax rates were 43.1% compared to 34.4%. The change in the tax rates were related to limitations on certain Federal manufacturing tax credits and an increase in state tax apportionment, caused by a greater portion of our revenue being related to Marine fabrication. Net income was $1.7 million compared to $4.6 million, basic earnings per share were $0.12, compared to $0.32. Diluted earnings per share were $0.12, compared to $0.32. Weighed shares outstanding were 14.3 million for both periods. Adjusted weighted average shares outstanding were $14.4 million compared to $14.3 million. Depreciation expense was $4.9 million, compared to $4.7 million. We declared and paid cash dividends of $0.01 per share for both quarters ended December 31 2010 and 2009.

The following are the results of operations for the 12-months ended December 31 2010, compared to December 31 2009. Revenue was $248.3 million compared to $311.5 million. The cost of revenue was $225 million compared to $272.1 million. Gross margin was $23.3 million, or 9.4% of revenue, compared to $39.5 million, or 12.7% of revenue. General & Administrative expenses was $7.9 million,or 3.2% of revenue, compared to $8.3 million, or 2.7% of revenue.

Operating income was $15.3 million compared to $31.2 million. We had net interest income of $5.0 million compared to net interest income of $986,000. Again, the increase in interest income was related to the income recognized on the agreement with Bluewater ATP. Income before taxes was $21.4 million, compared to $32.1 million,income tax expense was $8.3 million, compared to $11.3 million. Income tax rates were 38.7% compared to 35.3%. Again, the change in taxes were related to the limitations on the Federal manufacturing credits and the increase in the state apportionment created by a larger portion of our revenue being associated with Marine fabrication.

Net income was $13.1 million compared to $20.8 million, both basic and diluted earnings per share were $0.90, compared to $1.44. Weighed average shares and adjusted weighted average shares were 14.3 million for both periods. Depreciation expense was $19.3 million, compared to depreciation expense of $18.5 million.

We declared and paid cash dividends of $0.04 per share for the 12 months ended December 31 2010, and $0.13 for the 12 months December 31 2009. In addition to the press release issued yesterday regarding earnings, we issued a separate press release stating that the Board of Directors declared a dividend of $0.06 per share for the first quarter of 2011. Please refer to page one of the press release for additional review.

We had a record backlog of $486.1 million with a labor backlog of 3.8 million man hours remaining to work. Our previous record revenue backlog was $430 million, which was at the end of 2006, which is the year we purchased Gulf Marine. Cash and short-term investments was $88.1 million, compared to $8.8 million. Total current assets were $130.6 million, compared to $102.9 million. Property, plant and equipment was $197.7 million, compared to $200.5 million. Total assets were $334.9 million, compared to $332.2 million. Total current liabilities were $18.5 million compared to $32.4 million. Long-term debt was zero for both periods. Shareholders equity was $287.2 million, compared to $273.8 million. Total liabilities and shareholders equity was $334.9 million, compared to $332.2 million.

Other financial information for the three-months ended December 31 2010, compared to December 31 2009, consist of pass-through cost was 30.8% of revenue, compared to 37.2% of revenue. Man hours worked were 443,000, compared to 697,000. Deepwater revenue represented 3% of revenue, compared to 23% of revenue. Foreign revenue represented 13% of revenue, compared to less than 1% in the fourth quarter of 2009.

Other financial information for the year ended December 31 2010 as it compares to December 31 2009 was pass-through costs were 36.1% of revenue compared to 36.6% of revenue. Man hours worked were 2.4 million compared to 3.2 million. Deepwater revenue represented 7% of revenue, compared to 36% of revenue. Foreign revenue represented 3% of revenue, compared to 1%.

Other financial information for December 31 2010 compared to 2009 are again, revenue backlog was $486.1 million, that compared to $136.8 million, remaining man hours to work was 3.8 million, compared to 1.5 million. Revenue backlog for deepwater was $343.4 million, or 70.6%, compared to $19.9 million, or 14.5%. Revenue backlog for foreign locations were $33.8 million, or 7%, compared to $34,000, or less than 1%.

Of the backlog of December 31 2010 we expect to recognize revenue of approximately $304 million during 2011, approximately $177 million in 2012, and then the remaining $4 million thereafter. We had approximately 1,250 employees, ten contract employees, that compares to 1,400 employees and 50 contract employees. CapEx for 12 months ended 2010 was $16.5 million. The Board's approved CapEx for 2011 is approximately $35 million, which includes an additional $1.4 million for the completion of our graving dock gate located at our Texas Marine facility, which we anticipate to be completed at the end of the first quarter of 2011. We also purchased two Manitowoc 18000 cranes for about $11 million. They each have lifting capacity of 660-tons, those are for our Texas facility.

We anticipate spending about $4 million to buy six additional modular transporters, those are going to be used in our Houma facilities, and we expect those to be delivered in the third quarter of 2011. A note on depreciation, during 2011 we anticipate depreciation to increase slightly to be about $5.0 million to $5.2 million per quarter, and as the work volume increases related to our backlog, we anticipate our income tax rate to get closer to 36%, opposed to 38%.

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

Thank you. (Operator Instructions). We will proceed in the order that you signal us, and we will take as many questions at this time as time permits. (Operator Instructions). At this time, we will take our first question from Will Gabrielski with Gleacher.

Yes, thank you. Good morning, guys.

Good morning, Will.

Was there anything else booked in the quarter of size, or was that all Big Foot?

Well, we haven't said it was Big Foot. I guess you are saying it.

Or was that the large Gulf of Mexico project that you--?

No, the Gulf of Mexico project was the largest that we had, and there were some add-on segments to the original bid that we have been awarded, so other than that most of the projects are under the $40 million threshold that we talked about.

Okay. Can you help us understand how that will burn over the next six or eight quarters, how you see that project playing out, so we can model revenue appropriately?

Well we don't do it individually. Based own our calculations today, and those things do change from quarter-to-quarter, we think we are going to burn about $300 million of our total backlog of 2011.

Will, this is Kerry, look we don't give guidance, but I want everybody to be aware of the first quarter of 2011. We have not received very much material to start working on these big projects, so I know we had a pretty tough fourth quarter, we were about half what the analysts were projecting, and it was pretty tough, but we anticipate the first quarter will be an even tougher first quarter, because most of the material we have will arrive early in the second quarter this year.

Okay, that is helpful. I know you guys probably don't want to comment too detailed on this, but the utilization rate is obviously going to go up. Maybe just a comparison on how you feel about the as-booked margin on this particular large project versus the last time your backlog was at these levels, and what we can expect there?

All I can tell you is we don't comment on margins very much, but our bidding is consistent with what we have done in the past.

Okay, great. And the $88 million, are you investing that somewhere to earn a higher rate than the 1% we are seeing from other companies right now?

We are conservative which most everybody knows, and we are very protective of our cash and we know that we are going to have cash flow needs to buy materials upfront for some of these projects, and we are also looking at CapEx, there are some things we are going to do, labor saving equipment, facility upgrades, et cetera, et cetera. So we are using our cash just internally and investing it very, very conservatively.

Okay, great, thank you.

We will take our next question from Aryan Barto with Raymond James.

Good morning, guys.

Good morning.

Good morning.

Robin, you mentioned $34 million to be recognized in 2011. Was that correct, of the backlog, of the current backlog?

$300 million approximately.

I am sorry, $304 million. Could you give us a little clarity? Will that be more back end weighed, or just kind of the flow of how that will go quarter-by-quarter?

No, I would rather not, but based on what Kerry just commented on, we anticipate the first quarter to be relatively soft.

Right.

Because of the fact that it is going to take a few months for us to receive our material, and for it to have our people to start working on projects. We don't really start to show increase in profits, or you won't see necessarily a change in margins necessarily, until we add value to a project, and by adding value to a project, we associate that with man-hours, so that is why we give out pass-through costs, which is essentially materials and outside service type contractor costs, so as we give those numbers out each quarter, hopefully it gives you guys an idea of how it is flowing.

Okay, that is very helpful, thank you. How about international opportunities? You mentioned there were a couple of contracts you guys were bidding on the North Sea? Are you seeing any development there, maybe any of the other regions?

On the North Sea project, at this point in time it looks like we are probably are not going to get awarded those particular projects. I don't think they have been formally awarded, but I presume those projects at this point in time will remain in the European sector. There are other projects, of course, of a smaller nature for West Africa and possibly the Mediterranean that we may be looking at, but as far as the big North Sea projects, I think that is going to remain in Europe.

Okay. How about of the six or so Deepwater Gulf of Mexico contracts that you guys mentioned as well, any real indications that was rolled into backlog as well?

Well, there are two projects that are actively being bid at this point in time, two deepwater projects.

Okay.

And there is possibility of two or more coming out for bid sometime in 2011.

Okay. Very helpful, thank you. I will turn it back.

Okay.

We will take our next question from Martin Malloy with Johnson Rice.

Congratulations on the award.

Thanks.

Can you talk about what you typically see with these large projects, in terms of scope change and over the life of the fabrication of these topsides? Is it 10% to 20%, or is there any range like that, that you can help us with that?

Normally not that big of a growth in those particular projects, and those particular projects are bid a lot of times on a unit cost basis. We have pretty good drawings up front to bid on, and the growth factor is not normally that big.

Okay. And I just wanted, given the size of this award, I just wanted to make sure you have capacity for two additional large topsides at your yards?

Well, our Texas yard is probably feeling the brunt of this backlog, and they are going to be the biggest player. However, our Marine side is pretty active also. We still have some room to do some fabrication work in our Houma facility, and also some in our Texas facility, so yes, we do have space available even though the backlog has got this high.

Okay. In terms of the two deepwater projects that are being actively bid right now, is there any help you can give us in terms of thinking about the timing of when those might be awarded?

I think part of the problem is the Federal government is not issuing permits, and I think these particular clients have been dragging their feet waiting to see when the permitting process will commence again. So I can't really give you a date on that, because I don't think anybody knows when the Federal government is going to start issuing permits again.

Okay, thank you. Congratulations on the award win.

Thank you Martin.

We will take our next question from Joe Gibney with Capital One Southcoast.

Good morning Kerry, Robin. Just want to follow-up a little bit more on what happened on the revenue side 4Q and your outlook into 1Q I understand you are waiting here on material, and get going on the deepwater in 2Q, deepwater aside, just curious what happened in some of your base business on the revenue pull through?I think the expectation for revs out of backlog in 4Q was about $58 million. Did some of your tow boat, lift boat, and OSV work just get pushed off a little bit? Just curious to what happened sequentially in the quarter that sloughed revenue off so much?

Well, basically what happened is we don't have the oil and gas work to keep us busy at this point in time. Marine can't cover everything, so it is basically the oil and gas work dried up in the fourth quarter, and again in the first quarter. As the oil and gas work picks up in the second quarter, we ought to see some increased revenues at that particular point in time. But Marine just can't cover everything.

Okay. Anything else on the Marine front that you guys are seeing? I understand, understandably all of the emphasis is on deepwater, but what is our outlook here on lift boat and the OSV side, anything new internationally on the OSV front, lift boats in the Gulf of Mexico obviously could be a challenged outlook. Just curious your sense here, what else is out there on your base Marine order flow expectations?

Well, we are still bidding quite actively at this point if time, including lift boats. We are bidding barges, construction barges, deck barges. We are looking at some towboats, and things of that nature, so we are going to continue in that aspect. We have gotten to be kind of a lift boat type company at this point in time, and we have a couple of sizeable lift boats under contract at this point in time, and are constantly doing repair work on lift boats. We have a drydock in Houma, a 9,000-ton drydock that is staying fairly active on doing repair work lift boats, as well as supply boats and towboats, so that side of our business is staying somewhat active.

One last one for me, just ten contract employees as it stands now. What do you anticipate that getting to in 2Q and 3Q once the burn picks up a little bit more on the deepwater side?

I have always said that I hate contract employees, so we are going to try as we have to ramp for this larger project and the rest of our backlog, we are going to make a concerted effort to hire our own employees. As you remember a few years back, we were actually over 2,000 employees.

Sure.

So right now we are about 1,250, so our goal will be to hire as many of these employees as we possibly can, and of course, what we can't hire we will have to supplement with contract labor to meet our delivery schedule, and we don't know exactly what that is going to be at this point in time.

I understand. Congratulations on the order, guys, I appreciate it.

Thank you.

Thank you, Joe.

(Operator Instructions). We will go once again to Will Gabrielski with Gleacher.

Thanks. I was going to follow-up on headcount. You just answered that, so I will take this opportunity to just say nice quarter, and talk to you guys soon.

Okay, Will.

Great, thank you.

We will go next to Adam France with 1492 Capital.

Yes, good morning, thank you for taking my call. Kerry, I am still a little bit confused on the fourth quarter revenues. A gentleman commented earlier, in your third quarter you were talking about having about $58 million of work to do in the fourth quarter, it turned into $43 million. Did projects get canceled? Were there weather issues? What else can you tell us there?

Adam, this is Robin. When you look at each quarter or you look at the end of the year, when you look at our backlog changes from one point to the next point, the backlog change normally is a lot lower than our revenue, which means that we constantly have small projects that come in the door, that cause our revenue to go up without deteriorating the current backlog that we are operating on. I mean, we just don't burn backlog dollar for dollar, but during the fourth quarter, especially one of our subsidiaries that does work onshore as well as offshore, they just had a lot of those typical projects that sort of fall in that just didn't happen.

Okay. Very good. Thank you.

And there are no other questions from our analysts in the queue at this time.

Clay, we can open it up to anyone now, if there are no more additional questions from the analysts.

Okay. (Operator Instructions). And there are no other questions coming into queue at this time.

Well, we appreciate everyone, and for listening to the call, and we will talk to you all next quarter. Thanks.

This does conclude today's presentation. The replay of today's call will be available from Noon today through Noon on March 11 2011. The phone numbers to dial in to listen to the replay are 888-203-1112 or 719-457-0820. Once again, this does conclude today's presentation. Thank you for your participation.