Gulf Island Fabrication Inc (GIFI) 2011 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication 2011 second 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 2011 second quarter teleconference. Please keep in mind that any statements made in this teleconference 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 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 February 28, 2011. The 10-K was included as part of the Company's 2010 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 second quarter of 2011. The press release consist of two pages, one is text, page two is an income statement. I would like to review page two first.

The following are results of operations for the three months ended June 30th, 2011, compared to the three months ended June 30, 2010. Revenue was $87.3 million compared to $75.3 million, the cost of revenue was $82.4 million compared to $68.6 million, gross margin was $4.8 million or 5.6% of revenue, this compares to $6.7 million or 8.9% of revenue. The increase in revenue for the quarter is mainly attributable to the increase in pass-through costs, while the reduction in margin is related to the lack of man-hours worked mainly at our Texas facility.

General and administrative expenses was $2.0 million or 2.2% of revenue, compared to $2.0 million or 2.6% of revenue. Operating income was $2.9 million compared to $4.7 million. We had interest income of $124,000 for the three months ended June 30, 2011, compared to net interest income of $328,000 for the three months ended June 30, 2010.

Net interest income for the period June 30, 2010, which is the larger amount, is primarily related to the financing arrangement we had with ATP on the fabrication of our MinDOC project. Other income expense was a $228,000 gain, resulting from the sale of miscellaneous equipment, while the gain of $285,000 from last year was from additional settlements related to claims for damages incurred with the hurricanes that we had in 2008. Income before taxes was $3.2 million compared to $5.4 million.

Income tax expense was $1.4 million compared to $1.9 million. The income tax rates were 43.4% compared to 25.9%. The increase in tax rates was caused by the true-up we had in tax rates associated with our decrease in the federal qualified production activities income, and that was due to both related to the reduction of work at our Texas facility and the $7.7 million insurance claim write-off we had in the first quarter. We currently expect the tax rate to be about 38% for the remainder of the year.

Net income was $1.8 million compared to $3.4 million. Basic and diluted earnings per share were $0.13 compared to basic and diluted earnings share of $0.24. Adjusted weighed average shares outstanding were $14.3 million for both periods. Depreciation expense was $5.0 million compared to $4.8 million. We declared and paid cash dividends of $0.06 per share during the quarter ended June 30, 2011, compared to $0.01 per share during the quarter ended June 30, 2010.

The following are the results of operations for the six months ended June 30, 2011, compared to June 30, 2010. Revenue was $133.6 million compared to $144.5 million. Cost of revenue was $130.6 million compared to $130.4 million. Gross loss was $4.7 million or 3.5% of revenue, compared to a gross margin of $14.2 million or 9.8% of revenue.

General and administrative expenses were $3.9 million or 2.9% of revenue, compared to $4.1 million or 2.8% of revenue. Operating loss was $8.6 million compared to operating income of $10.1 million. We had net interest income of $117,000 compared to net interest expense of $1.3 million. Again, the 2010 net interest is related to the financing arrangement we had with ATP.

Other income expense was a $228,000 gain, resulting from the sale of miscellaneous equipment, and that compared to $1.0 million from the settlement and insurance claims related to damages that occurred from the hurricanes in 2008. Loss before taxes was $8.3 million compared to income before taxes of $12.4 million. Income tax was a benefit of $3.1 million compared to income tax expense of $4.5 million. The income tax rates were 38.0% compared to 36.0%.

Net loss was $5.1 million compared to net income of $7.9 million. Basic and diluted earnings per share was $0.36 compared to basic and diluted earnings per share of $0.55. Weighed average and adjusted weighed average shares were $14.3 million for both periods.

Depreciation expense was $10.1 million compared to depreciation expense of $9.6 million. We declared and paid cash dividends of $0.12 per share for the six months ended June 30, 2011, and $0.02 for the six months ended June 30, 2010.

Please refer to page one of the press release for review. We had a record backlog of $712.3 million with a labor backlog of $6.2 million man-hours remaining to work. The following items represent selected balance sheet information for June 30, 2011, compared to December 31, 2010. Cash and short-term investments were $32.1 million compared to $88.1 million. Total current assets were $155.3 million compared to $130.6 million.

Property plant and equipment net of depreciation was $208.1 million compared to $197.7 million. Total assets were $368.3 million compared to $334.9 million. Total current liabilities were $57.1 million compared to $18.5 million. Long-term debt was zero for both periods. Shareholders equity was $280.8 million compared to $287.2 million. Total liabilities in shareholders equity was $368.3 million compared to $334.9 million.

Other financial information for three months ended June 30, 2011 compared to June 30, 2010 consist of pass-through cost was 50.4% of revenue compared to 43.7% of revenue; man hours worked were 675,000 compared to 671,000; deepwater revenue represented 34% of revenue compared to 5% of revenue. Foreign revenue represented 15% of revenue compared to less than 1% of revenue.

Other financial information for the six months ended June 30, 2011, compared to June 30, 2010 consist of pass-through costs was 46.4% of revenue compared to 40.6% of revenue; man-hours worked were $1.1 million compared to $1.3 million, deepwater revenue represented 26% of revenue compared to 10% of revenue, foreign revenue represented 14% of revenue compared to less than 1% of revenue, again.

Other financial information for June 30, 2011 compared to December 31, 2010 consists of revenue backlog $712.3 million, which compared to $486.1 million; remaining man-hours to work was $6.2 million, which compared to $3.8 million; revenue backlog for deepwater was $565.8 million or 79.4%, compared to $343.4 million or 70.6%.

Of the backlog at June 30, 2011, we expect to recognize revenue of approximately $226.2 million, not including change orders, scope growth, or new contracts that may be awarded during the remainder of 2011, and approximately $486.1 million of the backlog is expected to be recognized as revenue in 2012 and thereafter. We had approximately 1,500 employees and 135 contract employees compared to 1,250 employees and 10 contract employees.

CapEx for the first six months of 2011 was $22.3 million. CapEx for the remainder of 2011 is approximately $16 million, which includes amounts for a large diameter pile rack for here and Houma, a (inaudible) at our Texas facility, the extension of our graving dock in Texas, and the remaining is just miscellaneous production equipment and facility improvements.

Although we have a record backlog, converting that backlog to operating earning results takes time. We should see some improvements in the man-hours in the third quarter and possibly the fourth quarter considering holidays that are in the fourth quarter. We still have large amounts of materials to purchase, which should also affect our pass-through costs.

Katie, can you now open up the call to our analysts.

Thank you. (Operator Instructions). Your first question comes from Will Gabrielski with Gleacher.

Thanks, good morning.

Good morning, Will.

Can you say the headcount number again? Sorry, I missed that.

Actually, the headcount at the end of the quarter was 1,500 employees and 135 contract, but right we've added about another 100 employees, so we have about 1,600 right now, Will.

Okay. And how has that's gone and what's your visibility on year-end in terms of being able to procure enough people to get to work if.

Kerry, would you like to address that.

Yeah. Yeah, Will, we have an active campaign, Will, right now to hire people in both Louisiana an Texas. As our Louisiana company, Gulf Island LLC, gets busy, they'll be working less on the marine side of our business and, therefore, we'll be hiring quite a few people for marine side. We expect to hire about 200 to 300 more in Louisiana and both oil and gas and marine side of our business.

In Texas, we anticipate probably another 500 or so employees. Texas may be a little easier to hire people. We put an ad in the newspaper and we ended up getting 1,900 applications, so it looks like Texas may be a little easier than Louisiana. The unemployment rate in Louisiana is still very low, but we anticipate getting the required number of personnel on the payroll by year-end.

Okay. And then can you guys talk about the cash burn quarter-to-quarter and what collection period is going to look like as you go through these projects?

Well, Will, like we've said in the past -- I mean, our cash balance was $88 million in December, $32 million at the end of June, but actually our cash balance is around $50 million today. Essentially, we have a lot of materials to still purchase. We're just basically getting started on the big projects.

Fortunately, the customers that we have all pay within short periods of time, so we will have cash outlay 60 days or so for the big purchases, but we're getting reimbursed rather quickly.

Of the revenue you're targeting to burn this year from backlog, the $226 million for the rest of the year, are we going to see a consistent percentage of that be related to pass-throughs like we saw in Q2?

I think the third quarter you will for sure. The fourth quarter maybe ease up a little bit. But, like I said, we still have a lot of material to purchase, and until we get the material purchased, delivered, run through the shops, we can't apply man-hours to it, which is where we start to improve our margins.

Will, let me add one thing, this is Kerry. Right now, we're about four months late on getting drawings on one of our major projects and this is delaying the actual purchase of some of the material and us being able to apply man-hours at our Texas facility. So, Q3 may not be as active as we like because of that.

And on the large (inaudible) hull, we're still in the process of getting drawings to be able to order material, so some of that material will probably be coming in towards the end of the of the third quarter into the fourth quarter. So there will be some delay in your ramp up. We probably won't be able to ramp up on these projects quite as quickly as we'd like to, but definitely in the fourth and first half of next year, we'll be full speed ahead.

Okay. Is that something that we're going notice in the margins in Q3?

Well, probably so because we won't be able to work the man-hours, especially at our Texas facility that we anticipated working, or should be working at this point and time. Also, on our Louisiana facility, we've had one of the wettest, rainiest Julys we've ever had. That is affecting our production somewhat, but we still have buildings, you know, undercover work areas that we're working in. In fact, this morning, we had a big downpour in Louisiana, and it seems like we get one in the morning and then in the afternoon, so that really slows you down and your ability to apply man-hours to some of these projects.

Then lastly, any color on the marine work? How that's progressing this year and what your visibility looks like?

Marine works pretty consistent. We've been very fortunate. Our backlog in marine work is staying pretty constant, so we're in pretty good shape there. I think the marine work will continue at the levels we've seen it and we may even see a little uptick towards the end of the year in some repair work, but basically it's been pretty stable.

Okay, great. I'll hop back into the queue. Thank you.

Okay, Will.

(Operator Instructions). Your next question is from Martin Malloy from Johnson Rice.

Good morning, Marty.

Good morning. Just talking -- if you could talk a little bit about the employee headcount. Are you expecting to reach 2,000 employees by the end of this year?

Yes. Yes, we're shooting for that. We may be a little shy, but I think we should be inline to have that by the end of the year, and then, of course, next year we may look at adding a few more on our marine side of our business.

Okay. And then, as far as -- could you talk a little bit about capacity and maybe timing of future deepwater Gulf of Mexico awards ?

Well, Marty, we don't like to talk about that; it's not a good word. What we like to talk about is our labor and how much work we can get out with our labor, because the facilities, we have more facilities than the work we have; we could always add on. So capacity is a moving target. But basically, with employee levels, we still will be able to take -- of course, we have to allow for change orders and, of course, smaller shelf type work that may come about.

One thing we're seeing right now is we don't anticipate they'll be some large structures, deepwater structures actually built in the water until probably maybe one at the end of this year, and there's a couple more for next year, which probably bodes well for us because I don't know if we could actually take another large deepwater project and put it in our facilities at this time. Probably sometime about mid-year next year we'd be ready to do another one.

Thank you.

Okay, Marty.

(Operator Instructions). We'll take your next question from Blake Hutchinson with Howard Weil.

Good morning, Blake.

Good morning, how are you?

All right.

Good. As we kind of follow along here as you start to execute through this backlog, is there a kind of level of man-hours that you associate with kind of being fully efficient as we work through these projects that when we see that, it would represent a period where we should expect kind of margins to be representative of everything's flowing along to plan or just kind of maybe size the man-hours you would like to be at to be kind of fully efficient here?

Probably at 2,000 employee is probably our best efficiency, maybe 2,200 employees we can get with the marine side of our Company. So that, we've experienced in the past is probably the most efficient for us at this time.

But in terms of, you know, man-hours worked, do we have to get above a million man-hours a quarter in your mind if.

Well, we need to be looking at -- yeah, 4 million man-hours a year.

Okay, great. And then, Robin, I guess is the delay in the drawings contemplated in the numbers or burn from backlog that you gave us in your opening comments?

Yes.

Okay. And then just to kind of maybe help us a bit in terms of broad strokes with regard to the major projects in the backlog, maybe you could just give us kind of contemplated delivery times from your customers for some of the major projects in the backlog.

Kirk, you want to answer that?

Yes, Kerry. Of course, down in South Texas, the Williams hull is late third quarter, first quarter within Q2012, and then Chevron Big Foot, you know, current schedule right now is for the same timeframe towards the tail-end of 2012, possibly first quarter within 2013. And the big projects here in Louisiana are a little bit ahead of that. The majority of that probably is end first quarter, first part of second quarter 2012.

Okay, great. So then as we associate the burn from backlog, again from Robin, you did say -- you gave the number for 2012 and beyond, but it seems like most of that would be 2012.

Well, again, it will be late 2012, first part of 2013.

Sure, okay.

Probably most though into 2013.

Great. Appreciate the time, guys. Thank you very much.

Okay.

Well go next to Lenny Bianco with Raymond James.

Good morning, guys.

Hey, Lenny.

Hey, how are you doing?

Good.

Maybe provide us a sense of what the labor curve looked like in June, maybe July, versus April, kind of at the backend what the calculation is assuming 55-hour work week? It looks like there was something (inaudible) over the quarter around 900 to 1,000 billing (inaudible).

Robin, do you have that?

Say that again, Lenny, about -- you're looking at labor -- number of employees from March quarter to this quarter?

Right, it looks like in Q2 on average, 55-hour work week, you guys had between 900 and 1,000 guys billing in an entire quarter. Can you give us a picture of what that looked like maybe in April versus June? Was there a significant ramp towards the end of the quarter or was it kind of an even run rate throughout?

I would think it would be an even run rate. We probably had about 1,300 employees or so at the end of March, so we've picked up a few hundred, but you know these guys -- I mean, the things that they're doing now is they're doing a fair amount of marine work. These 200 guys are not necessarily working strictly on some of these big projects because we're just not that the point yet.

But let me, Lenny, we actually have beefed up our hiring towards the end of the second quarter. We were hiring all during the quarter, but we really ramped it up towards the end of the quarter, so it's not all reflected in the second quarter.

Great color there. Maybe shifting gears. You said mid-2012, you would be able to work in another deepwater project. Would that be something internationally or should we be thinking Gulf of Mexico there?

Well, I would be assuming Gulf of Mexico, but, of course, we're open any option; we'll take international or Gulf of Mexico.

Okay, great, that's all I had. Most of my questions have been answered, so I'll pop back in the queue.

(Operator Instructions). We'll go next to Jeff Patel with Madison Williams.

Good morning, folks, how are you?

Good morning, Jeff, pretty good.

Good. Most of my questions have been answered. A quick question about maintenance work in the Gulf, with I guess the permitting situation being what it is and kind of in a seasonal sweet spot. What's the appetite like out there for kind of your vanilla maintenance work in the yards right now?

Well, it's been rather slow, to be honest with you. Our offshore workers have not been very active this year. Of course, that's a very small part of our business, but we've definitely seen a slow down in maintenance and everything else offshore, so hopefully we'll see a change in the second half of this year where we're seeing some of the operators starting to spend some money on maintenance and we hope that continues, at least until we get into the winter months, which basically the maintenance offshore shuts down for about three or four months offshore for the winter when you have horrible weather.

Sure. And switching gears. I know you certainly have done really well on the award front, some of your competitors have, too. Capacity has filled up nicely in the Gulf. As we start to think, I know we're early, with the next phase of deepwater projects that are out there, how do you feel about the pricing climate is going to look?

Well, that's a little difficult to talk about at this time. We'll just bid our normal pricing strategy and see how it goes. Our thought has always been let our competitors take the first few jobs and we'll come in the background and hopefully get a better profit.

But on some of these large jobs, because the way they distribute in the fab yards, sometimes they come a little quicker than what you anticipate. But we'll be bidding our normal margins that we try and shoot for on the future jobs, and if our competitors take it before us, we'll wait and take the next one.

Nothing wrong with that. Great quarter. Thanks, guys.

Thank you, Jeff. We'll go next to Adam France with 1492 Capital.

Yes, good morning. Thank you for taking my call here. Robin, could I get you to repeat what you said about pass-through revenue in the first quarter, I wasn't writing fast enough? My apologies.

The numbers I gave on pass-through costs for the June quarter, just the quarter, it was 50.4%, and that compared to 43.7%. Now, that's quarter-over-quarter. For six months to six months, the pass-through costs was current 2011 was 46.4% and then 40.6%.

Okay, very good. Thank you very much.

Okay.

(Operator Instructions). It appears we have no further questions at this time.

Okay, well we appreciate everybody listening into the call. If we don't have any more questions, then we'll talk to everybody next quarter. Thanks.

That does conclude today's conference. We thank you for your participation.