Gulf Island Fabrication Inc (GIFI) 2011 Q3 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Gulf Island Fabrication Inc. 2011 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.

Thank you, Audra. I would like to welcome everyone to Gulf Island Fabrication's 2011 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 February 28, 2011. The 10k 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 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 third-quarter 2011. The press release consists of 2 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 3 months ended September 30, 2011 compared to the 3 months ended September 30, 2010. Revenue was $85.8 million compared to $60.7 million; the cost of revenue was $81.8 million, compared to $53.8 million; gross margin was $4.0 million, or 4.7% of revenue, compared to $6.9 million, or 11.4% of revenue.

The increase in revenue for the quarter is mainly contributed to the increase in pass-through costs, while the reduction of margin is related to the lack of man hours worked, mainly at our Texas facility. Also contributing to the reduction in the margin was a $1.8 million loss that we recognized on a project to fabricate 2 barges. One barge is complete, and has been delivered to the customer. The other barge will be completed by the end of this year.

General administrative expenses were $1.9 million or 2.2% of revenue, compared to $2.0 million, or 3.3% of revenue. Operating income was $2.1 million, compared to $4.9 million. We had net interest income of $330,000 for the 3 months ended September 30, 2011, compared to net interest income of $1.0 million for the 3 months ended September 30, 2010. The net interest income for the period ended September 2011 is relating to financing agreement -- we had one of our customers regarding the collection of $11 million worth of retainage balance on a completed contract; whereas the period ended September 30, 2010, is related to the financing arrangement we had with ATP on the fabrication of the minDOC hull.

Other income and expense was $89,000 gain resulting from sales of miscellaneous equipment; the gain of $23,000 from last year was also related to the sale of miscellaneous equipment. Income before taxes was $2.5 million, compared to $6.0 million. Income tax expense was $954,000, compared to $2.5 million. Income tax rates were 38.0%, compared to 42.2%. Net income was $1.6 million, compared to $3.5 million.

Basic and diluted earnings per share were $0.11 compared to basic and diluted earnings per share of $0.24. Weighted average and adjusted weighted average shares outstanding were 14.4 million for both periods. Depreciation expense was $5.2 million, compared to $4.8 million. We declared and paid cash dividends of $0.06 per share during the quarter ended September 30, 2011, compared to $0.01 per share during the quarter ended September 30, 2010.

The following are the results of operations for the 9 months ended September 30, 2011, as compared to September 30, 2010. Revenue was $219.4 million, compared to $205.3 million. The cost of revenue was $220.1 million, compared to $184.2 million, but we had a gross loss of $718,000, compared to a gross margin of $21.1 million, or 10.3% of revenue for 2010. Included in the reported loss was the $7.7 million pretax charge in the first quarter of this year, related to the impairment of an insurance claim. General administrative expenses were $5.8 million, or 2.6% of revenue, compared to $6.1 million, or 3.0% of revenue. Operating loss was $6.5 million, compared to operating income of $15.0 million. We had net interest income of $447,000, compared to net interest income of $2.4 million. Again, the 2011 net interest income is related to the financing agreements we had with our customers, as was mentioned in the quarterly results.

Other income or expense was $317,000 of a gain, resulting from the sale of miscellaneous equipment, which compares to $1.0 million for settlement of insurance claims for damages we had related to the hurricanes of 2008 for the period ending September 30, 2010. Loss before taxes was $5.8 million compared to income before taxes of $18.4 million. Income tax was a benefit of $2.2 million, compared to income tax expense of $7.0 million. Income tax rates were 38% for both periods.

Net loss was $3.6 million compared to net income of $11.4 million. Basic and diluted loss per share was $0.25, compared to basic and diluted earnings per share of $0.79. Weighted average shares and adjusted weighted average shares was 14.3 million for both periods. Depreciation expense was $15.2 million compared to depreciation expense of $14.4 million. We declared and paid cash dividends of $0.18 per share for the 9 months ended September 30, 2011, and $0.03 for the 9 months ended September 30, 2010.

Please refer to page 1 of the press release for a review. We had a record -- revenue backlog of $664.7 million, with a labor backlog of 5.2 million man hours remaining to work. The following represents selected balance sheet information for September 30, 2011, compared to December 31, 2010. Cash and cash equivalents were $61.2 million, compared to $88.1 million. Total current assets were $158.0 million, compared to $130.6 million. Property plant and equipment net of depreciation was $214.1 million, compared to $197.7 million. Total assets were $375.2 million, compared to $334.9 million.

Total current liabilities were $62.0 million, compared to $18.5 million. Long-term debt was zero for both periods. Shareholders' equity was $281.7 million, compared to $287.2 million. Total liabilities and shareholders' equity was $375.2 million, compared to $334.9 million.

Other financial information for the 3 months ended September 30, 2011, compared to September 30, 2010, consists of -- pass-through costs was 46.9% of revenue, compared to 29.2% of revenue. Man hours worked was 759,000, compared to 625,000. Deep water revenue represented 42% of revenue, compared to 3% of revenue. Foreign revenue represented 19% of revenue, compared to 2% of revenue.

Other Financial information for the 9 months ended September 30, 2011 compared to September 30, 2010, consists of -- pass-through costs was 46.6% of revenue, compared to 37.2% of revenue. Man hours worked was 1.9 million, compared to 2.0 million. Deep water revenue represented 32% of revenue compared to 8% of revenue. Foreign revenue represented 16% of revenue, compared to 1% of revenue.

Other financial information for September 30, 2011, compared to December 31, 2010, consists of -- revenue backlog was $664.7 million, compared to $486.1 million, and earlier I had mentioned that that was record backlog, but actually the record backlog was the $712 million that we had mentioned last quarter. Remaining man hours to work is 5.2 million, compared to 3.8 million.

Revenue backlog for deep water was $545.4 million, or 82.1%, compared to $343.4 million, or 70.6%. Of the backlog at September 30, 2011, we expect to recognize revenue of approximately $99.2 million, which does not include change orders or scope growth or new contracts that may be awarded during the remainder of '11. And approximately $565.5 million of the backlog, which is the balance, is expected to be recognized in 2012 and thereafter. We had approximately 1,700 employees and 125 contract employees. That compares to 1,250 employees and 10 contract employees.

CapEx for the first 9 months of 2011 was $33.4 million. CapEx for the remainder of 2011 is going to be approximately $6.6 million, which includes the completion of our [P&L] line at our Texas facility, and some extension on our graving dock, also at our Texas facility. The rest is just going to be miscellaneous production equipment or facility improvements.

We continue to ramp up our production hours at our Texas facility on our deep water contracts through the remainder of 2011. We should see a slight improvement in the fourth quarter, but due to delays in receiving some drawings on one of our large projects, we do not anticipate to see a significant ramp up until sometime in the first quarter of 2012. Also, we think our pass-through cost in the fourth quarter is going to be similar to our pass-through cost that we had in the third quarter.

Audra, now you can open up the call to the analysts.

Thank you.

(Operator Instructions)

Matt Tucker with KeyBanc Capital Markets.

Thanks for taking my questions.

Hey, Matt.

Could you give a little more color on the status of the projects where you have been waiting for the designs. How much, if at all, you were able to ramp up on those in the third quarter, and just kind of the timing of getting the information you need, how much visibility do you have on that?

Sure, Matt. This is Kerry. We have received the drawings recently, primary and secondary steel, on this major project. We are still waiting additional drawings for things such as piping, E&,I and the details on the smaller type steel. But now we have enough drawings to really crank off and start getting our production up. Of course, we have to get the materials in first, which should be coming in, in the fourth quarter. And as Robin said, we should be really cranking up on this project starting the first quarter of 2012.

These drawings were delayed approximately 6 to 8 months. So it really delayed our production. We were hoping to be in full production sometimes towards the end of the second quarter, and needless to say that didn't happen. But we are hiring right now. We are in the hiring mode, as Robin said. We are up to about 1,700 employees, and we anticipate hiring approximately 25 employees, 20 to 25 employees a week until we have reached the area of 2,000, to 2,200 employees, sometime in the first quarter.

I guess based on your conversations with your customer, what is your level of confidence that you will really be able to ramp up significantly in the first quarter, how much risk do you think there is that that could continue to slip out a little bit?

Well, since we have the drawing, it's in our court. So we have to procure the material, which we feel pretty comfortable in, and so I think it's now on us and not dependant, or the risk is not with our customer at this point in time.

Thanks, and then just on the loss on the barge projects. Could you give us a little more color in terms of what went wrong there, and how confident are you that you won't see an additional loss in the fourth quarter on the barge that has yet to be completed? And then finally, are there other similar projects currently in your backlog?

Okay. The barge project was, to be honest with you, was a bad bid, and also it was some poor execution on our part on the marine side of our business. We have analyzed the second barge contract, and we feel we have accrued any potential losses on that particular contract in the third quarter. So we don't anticipate any additional (technical difficulties) We have also gone and analyzed other contracts and projects to make sure that we don't have that type of situation in our other contracts. And we feel pretty confident that we won't have another one like that at this point in time. Every now and then you get a bad one, and that one was, I guess, one of our first ones, but it was not a good contract for us. We just messed up.

I will jump back in the queue, thanks.

Okay, Mat.

Martin Malloy with Johnson Rice.

Good morning. I was wondering if you could maybe update us about the outlook in terms of the bidding opportunities out there for next year in the deep water Gulf of Mexico, timing it and maybe number of projects that are (technical difficulties) late next year.

Okay, Marty. Right now we are anticipating maybe 2 deep water projects to be bid, probably in the second quarter of next year. Maybe delayed a little to the third quarter, but in the second quarter we hope to see those particular bids. Then after that (technical difficulties).

And then could you talk about the bidding environment on the marine side and how confident you are that you can be able to maintain a relatively robust level of activity there.

Sure, Marty. On the marine side, the bidding activity is pretty constant. It is not really accelerating and it is not decreasing. It is pretty constant and there are some situations that may happen where it may get even more robust. And we just don't know that at this point in time, but that has been a good market, and been, like I said, it has been pretty steady for us. And going forward we hope to continue to keep that backlog at reasonable levels.

Great. Thank you very much.

Okay, Marty.

(Operator Instructions)

Lenny Bianco at Raymond James.

Thanks, and good morning, guys.

Hey, Lenny.

Regarding the barge projects, assuming revenue is recognized on percent complete, (technical difficulties) in the third quarter as the completion got pushed out to the right on those?

Well, on using percent complete accounting, once you realize you have a loss on a project you take the entire loss.

Okay, great.

So basically what we did was we estimated what we thought (technical loss) and that entire loss got pushed into the third quarter.

Okay, and you said the second one was going to be completed by the end of this year?

It will be complete by the end of this year, correct.

What should we be thinking in terms of annual run rate there, still kind of in the $75 million to $100 million range?

Well, we think that, based on the activity we see in the marine sector, that, that is probably a pretty good estimate for a constant backlog.

Okay, great. Thank you, guys. I will hop back in the queue.

Okay.

And next we will go to Matt Tucker with KeyBanc Capital Markets.

Hey, guys, my other questions were just asked and answered, so thank you.

Okay, Matt.

(Operator Instructions)

And we will go to Bryan Dutt at Iron Man Energy.

Good morning, gentlemen. How are you doing?

Hey, Bryan.

On the delays with the drawings, 6 to 8 months, are there any kid of (technical difficulties) the customer pays? I mean, it seems like you take a lot of risk and have a tremendous amount of downtime here that you are not being compensated for.

Bryan, we are talking and negotiating with our customer right now and I really cannot give you any specifics on that at this point in time.

Okay. Then my follow up was going to be change contracts with the drawings, and I guess you probably cannot answer that either, because if you sign a contract, and then you get drawings later, how does the contract (technical difficulties)

(Technical difficulties) on that.

I appreciate that, Kerry, Thank you, and keep up the good work.

Okay, Bryan, thank you.

And at this time, we have no further questions in the queue.

Audra, you can open the calls up to other people now, besides the analysts.

All right.

(Operator Instructions)

And it appears at this time, there are no further questions.

Okay. Well, we appreciate everybody listening in to the call, and We will talk to you guys next quarter, thanks.

And that does conclude today's conference. Again, thank you for your participation.