Gulf Island Fabrication Inc (GIFI) 2012 Q1 法說會逐字稿

Good morning. Welcome, ladies and gentlemen, to the Gulf Island Fabrication, Inc., 2012 First Quarter Earnings Release teleconference. 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 Knoblach for opening remarks and introductions. Deborah, please go ahead.

I would like to welcome everyone to Gulf Island Fabrication's 2012 First 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 2nd, 2012. The 10K was included as part of the company's 2011 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. Roy Breerwood, our CFO. Roy?

Thank you, Deborah. I would like to review Gulf Island's press release, issued for the first quarter of 2012. The press release consists of two pages. Page one is text, and page two is an income statement. I would like to review page two, which is the income statement, first.

The following are the results of operations for the three months ended March 31st, 2012, compared to the three months ended March 31, 2011. Revenue was $113.1 million, compared to $46.3 million. The cost of revenue was $100.4 million, compared to $55.9 million. Gross margin was $12.7 million, or 11.2% of revenue, compared to a loss of $9.6 million. The increase in man-hours worked contributed to both the increase in revenue and the increase in gross margin in 2012. The increase in production primarily related to our two large deep water projects, had a favorable impact on margin, due to the spread it provided to our fixed overhead, as compared to the prior year.

Included in our gross margin for the 2011 period was the $7.7 million pre-tax charge related to the impairment of an insurance claim. We incurred no such asset impairments in our 2012 period.

General and administrative expenses were $2.6 million, or 2.3% of revenue, compared to $1.9 million, or 4.1% of revenue. Operating income was $10.1 million, compared to a loss of $11.5 million. We had net interest income of $152,000 compared to net interest expense of $7,000. Net interest income for the period ended March 31, 2012, is related to the financing agreement with one of our customers regarding the selection of an $11 million [retainment] balance on a completed contract. [technical difficulties]

Hello, Deborah?

Deborah has stepped away for a moment.

OK.

OK. Continuing on - other income for the 2012 period represents a $63,000 gain, resulting from the sales of miscellaneous equipment. Income before taxes was $10.3 million, compared to a loss of $11.5 million. Income tax expense was $3.5 million, compared to a benefit of $4.5 million. Income tax rates were at 34% compared to 39.5%. The decrease in the effective rate for the 2012 period was primarily related to the increase in income, particularly for our Texas facility, which caused an increase in our estimated federal qualified production activities income deduction, and a decrease in the Louisiana state income tax [enforcement].

Net income was $6.8 million, compared to a net loss of $7.0 million. Basic and diluted earnings per share were $0.47 for both periods. Weighted average and adjusted weighted shares outstanding were 14.4 million shares for the period ending March 31st, 2012. Weighted average and adjusted weighted shares outstanding were 14.3 million shares for the period ended March 31st, 2011. We declared and paid cash dividends of $0.10 per share during the quarter ended March 31st, 2012, compared to $0.06 per share during the quarter ended March 31, 2011.

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

We had a revenue backlog of $548.4 million with a labor backlog of 3.9 million man-hours remaining to work at March 31, 2012, as compared to revenue backlog of $614.5 million, with a labor backlog of 4.6 million man-hours remaining to work at December 31, 2011.

The following represents selected balance sheet information for March 31, 2012, compared to December 31, 2011. Cash and cash equivalents were $42.7 million compared to $55.3 million. Total current assets were $149.8 million, compared to $177.9 million. Property, plant, and equipment, net of depreciation, was $225.9 million, compared to $216.7 million. Total assets were $376.4 million, compared to $395.9 million. Total current liabilities were $50.9 million, compared to $76.0 million. Long-term debt was zero for both periods. Shareholders equity was $288.2 million, compared to $282.8 million, and total liabilities and shareholders equity was $376.4 million, compared to $395.9 million.

Other financial information for the three months ended March 31, 2012, compared to March 31, 2011, consists of pass-through costs were 35.4% of revenue, compared to 39.0% of revenue. Man-hours worked were 1.2 million compared to 449,000. Deep water revenue represented 69% of revenue, compared to 11% of revenue in 2011. Foreign revenue represented 16% of revenue, compared to 13% of revenue in 2011. Backlog information from March 31, 2012, compared to December 31, 2011, consists of revenue backlog was $548.4 million, compared to $614.5 million. Remaining man-hours to work was 3.9 million, compared to 4.6 million. Revenue backlog for deep water was $458.0 million, or 83.5%, compared to $509.8 million, or 83.0%.

Of the backlog at March 31, 2012, we expect to recognize revenues of approximately $465.1 million, not including any change orders, [poke] growth, or new contracts that may be awarded during 2012, and approximately $83.3 million of backlog is expected to be recognized as revenue in 2013.

We had approximately 2,350 employees and 150 contract employees at the end of March of 2012, compared to 1,950 employees and [90] contract employees at the end of 2011.

CapEx for the three months of 2012 was $14.8 million. Approximately $27.0 million of remaining expenditures are planned for 2012, which consist of approximately $12.8 million for the purchase of equipment, and $14.2 million for additional yard and facility infrastructure improvements.

Construction continues on a [coffer] cell to drain our grading dock. We anticipate the grading dock will be drained by the end of May, at which point we can assess the damage to its slab.

We are currently operating close to capacities required by the projects in our backlog. We expect a level of production consistent with the first quarter of 2012 through the second and third quarters, as work continues on these projects. We continue to focus on managing the costs associated with our workforce and meeting our scheduled demand.

I would now like to open the call to questions of the analysts.

(Operator instructions) Rob Norfleet, BB&T Capital Markets.

Hi, good morning, guys. This is actually Bryce Humphrey, in for Rob. Thanks for taking my questions.

Good morning, Rob.

I actually- I got kicked off early on in the call, so I apologize if you covered this, but your expense control in the quarter, both on contract costs and G&A was really solid, and is that a run rate we can expect as you kind of ramp up on these projects and start to better absorb your fixed assets?

I believe so. We are - you know, we don't anticipate anything outside of the ordinary going forward, as far as our cost structure.

OK. And then you mentioned you're operating at close to capacity, based on the contracts at your fab yards currently. I don't think you're quite at peak capacity, though. Could you just comment on maybe your capacity for any of the larger Gulf of Mexico contract opportunities out there, and maybe just tie that into what you're bidding out, which is for the Gulf at the moment?

OK, this is Kerry. Capacity is a strange word to use. We don't necessarily use ``capacity,'' but I think we stated that we're working at capacity for these individual projects we have at this particular point in time.

I see.

As far as taking on new, significant projects, I think most of these projects, we're looking at two potential projects in the second half of this year to be bid, and again, there are several in 2013 we'll be looking at. We're also looking at some modules, but I think the modules that we're looking at will slide well into 2013, but they are deep water opportunities in 2012, going into 2013, that we will be taking a look at. Needless to say, with the amount of work we have now, we cannot take an additional job of real significance at this point in time. However, towards the end of this year, the opportunities should increase, and we hope to secure more work more towards the end of the year.

Great. That's very helpful. Thanks, guys.

OK.

Matt Tucker, Keybanc Capital Markets.

Good morning, guys, and congrats on a nice quarter.

Thank you.

You know, I'm assuming that the ramp up you saw sequentially in the first quarter, you know, suggests that you're kind of going full steam now on your major projects, including the Texas one that had been delayed. At what point, you know, during the first quarter did you kind of get to that level, where you got all the information, or supplies that you needed, from the customer in order to kind of ramp up to full production?

Well, we're still getting it; there's still some delays, and it's [inaudible] needless to say, but we're still getting information and material in from our clients. But yes, we are ramped up for a high level. It actually happened probably towards the end of the second month in the quarter, where we running - I wouldn't say full steam, but at least keeping going at a respectable rate, so we expect that to continue.

Now in the second quarter, I just want to make everybody cautious that, you know, we do have some repairs on the grading dock that could come into play in the second quarter, and these would be- some would be covered by insurance, but some would be potentially expensed. And we're not talking about a significant amounts, but upwards, maybe, $1 million, $1.5 million of potential repairs on the grading dock in the second quarter.

Got it. That's helpful. And I guess I was a little confused by the comment in the prepared commentary that second and third quarter production levels would be similar to the first quarter. I mean, if you look at the amount of backlog that you expect to burn this year, it suggests that revenues on average will be much higher for the remainder for the year. So can you kind of help me reconcile or you know, give us a sense of kind of the trajectory from here? I mean, it sounds like you should see, you know, a fairly significant step up in revenues sequentially, in the second quarter. Is that fair?

Well, I think we'll see some increase in revenue as far as the Gulf Island side. We do have pass-through costs, which is our third party contractors, such as electrical and instrumentation and piping subcontractors. So we will see more pass-through costs come through probably in the second and third quarter than what we've seen in the first quarter.

Got it. Thanks. And then just on the deep water prospects that you see for 2012, in the second half, has there been any movement in those, you know, projects, in terms of your expected timing, versus last quarter's call, and do you feel any more or less confident, you know, that those will happen this year?

Well, everything's essentially the same. There's been no change in our clients' thinking on these particular projects. It's just a timing situation and waiting for them to produce some bids that we can look at, towards the end of the second half.

As you are ramping up, and now we're starting to work off some of these large projects in your backlog, at what point do your current projects start to ramp down and you know, at what point do you kind of need to get another large award to prevent there from being much of a kind of gap in utilization?

Well, we're looking at probably 2012 should be a relatively stable year. When we get into the first quarter of 2013 is when we actually need to fill up some work, so we would need probably an award on a big project somewhere near the end of the year to be able to ramp up in 2013.

Martin Malloy with Johnson Rice.

Good morning, Marty.

Good morning. Congratulations on the quarter.

Thank you, Marty.

Could you talk a little bit about what we can expect in terms of margins? As you've become more efficient and remain at higher levels of labor-hours over the next couple of quarters, when I look back to a few years ago, there's still a lot of upside to some of the gross margins that you were hitting then.

Marty, we don't normally comment too much on margins, as you know, but you know, typically, we strive to get into that 12% margin range, and maintain that, and possibly get to the 14%. That's been our goals ever sine we've been in business, and we're going to continue to strive to reach those particular goals.

OK. And any increase that you're seeing in the shallow water Gulf of Mexico, in terms of potential project awards, or any international ones, or bidding opportunities?

Yes, Marty, there are a couple of opportunities, but we'll see these opportunities more towards the end of the third quarter and possibly the fourth quarter. But there are two or three opportunities for shallow water, and relatively shallow water in the foreign aspects of West Africa.

OK, and then one final question - the labor market, can you give us an update there in terms of what you're seeing and ability to maintain your labor force?

The labor market is very difficult. We were able to ramp up to about 2,300 employees at this point in time. We figure we'll stabilize at that level, and as far as getting additional employees, it would be rather difficult at this time. But we have instituted some training programs in all our facilities to bring new employees on and get them up to speed, with the latest welding and fitting criteria, so we are training new employees as we go, which is an expense, but it's an expense well-spent for the future.

Thank you very much.

(Operator instructions) Lenny Bianco, Raymond James.

Good morning, guys. Nice quarter.

Tahnk you.

Yeah, finally got some of that steel in the shop.

Actually, getting to do some work, so that's great.

Well, good. So maybe circling back for a minute on the pass-through -- where do you guys see that trending over the next couple of quarters? You gave us some color, but maybe do we see it in that mid 40s range, like we saw in the second half of '11, or kind of maybe some direct- obviously directionally up.

It'll be up. Buddy, do you want to comment on that?

Certainly. It could very well hit 40% because of our- more materials coming in, and also more subcontractors progressing through the latter half of each project, so you know, that is a possibility. You can see rate go as high as you've seen them in the past, but you know- workingg off our labor also contributes to the revenue significantly enough to where I don't anticipate it going much above 40.

OK. Thanks for the color there. And maybe provide us with an update on the marine side of the business, a little color of how the book of work looks, kind of going into 2Q, 3Q?

OK, well, marine work is still very active, but it has slowed down just a little. Now, what we've done to enhance the schedules on the oil and gas side, we are redicting some of our marine employees to oil and gas, to be able to supplement our scheduled deliveries, so we're working on that. But there are opportunities on the marine side, later on this year, that I think will come to fruition.

Great. So maybe fair to say a lot of the revenue you guys will be passing through the income statement is going to be out of backlog out the next couple of quarters, then?

That's correct.

Great. Well, I appreciate the color and I'll turn it back.

OK, thank you.

And at this time, we have no other questioners in queue.

OK, well, we thank everybody for joining us today and look forward to talking to you again in three months.

And as a reminder, there is a replay available for today's conference. The replay willl be open to the public today at 12 o'clock Central Time and will close on May 11 at 12 o'clock Central Time. To dial in and access the replay, please dial 1-719-457-0820 if you are outside the U.S., and if you are inside the U.S., please dial 1-888-203-1112. You will need your confirmation code from today's conference call, which is 7410159. Thank you and that does conclude today's conference.