Gulf Island Fabrication Inc (GIFI) 2013 Q2 法說會逐字稿

Good morning, and welcome ladies and gentlemen to the Gulf Island Fabrication second quarter 2013 earnings 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 2013 second 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 statement concerning forward-looking information and elsewhere in the company's 10k filed March 13, 2013.

The 10k was included as part of the company's 2012 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. Kirk Meche, President and CEO, and Mr. Jeffrey Favret, our CFO. Jeffrey.

Thank you Deborah.

Good morning and welcome to our second quarter 2013 conference call. I'll discuss highlights from the quarter, provide specifics on our financial performance and then we'll open up the call for your questions. Revenue for the three months ended June 30, 2013, was $154.6 million, compared to $137.2 million for the three months ended June 2012. Cost of revenue was $144.9 million for the three months ended June 20, 2013, compared to $123.3 million for the three months ended June 30, 2012. Gross profit was $9.7 million, or 6.3% of revenue for the three-month period ended June 30, 2013, compared to gross profit of $13.9 million, or 10.1% of revenue for the three months ended June 30, 2012.

The following were the results of operations for the six months ended June 30, 2013, compared to the six months ended June 30, 2012. Revenue was $305 million, compared to $250.3 million. Cost of revenue was $288.6 million, compared to $223.7 million. Gross profit was -- I'm sorry, gross profit was $16.4 million, or 5.4% of revenue, compared to gross profit of $26.6 million, or 10.6% of revenue.

The decrease in gross profit for the three months ended June 30, 2013, compared to the three months ended June 30, 2012, was due to two factors. $55.3 million in revenue was recognized from pass through costs, excluding pass through costs for a large deep water project. Pass through costs have little or no impact to gross profit. Furthermore, an additional $43.4 million of revenue was recognized from a large deep water project, which had an adverse impact on gross profit recognized during the quarter. This project is scheduled for delivery in the first quarter of 2014.

For the six months ending June 30, 2013, and June 30, 2012, gross profit was $16.4 million, or 5.4% of revenue and $26.6 million, or 10.6% of revenue respectively. Similar to the three-month comparison, the decrease in gross profit for the first six months 2013 compared to the first six months 2012 was due to two factors. $110.8 million in revenue was recognized from pass through costs, excluding pass through costs for a large deep water project. An additional $88.8 million of revenue was recognized from the large deep water project, which had a negative impact on our gross profit recognized for the six-month period ended June 30, 2013.

General and administrative expense were $2.9 million and $5.2 million for the three month and six-month periods ending June 30, 2013, respectively, compared to $2.6 million and $5.2 million for the three-month and six-month periods ended June 30, 2012, respectively. As a percentage of revenue, general and administrative expenses for the three-month and six-month periods ending June 30, 2013, were 1.8% and 1.7% respectively, compared to 1.9% and 2.1% for the three-month and six-month periods ended June 30, 2012 respectively.

For the three-month period ended June 30, 2013 and June 30, 2012, operating income was $6.8 million, compared to $11.3 million. For the 6-month period ending June 30, 2013 and June 30, 2012, operating income was $11.2 million, compared to $21.4 million respectively.

The company had net interest expense of $60,000 and $123,000 for the three-month and six-month periods ended June 30, 2013 respectively, compared to a net interest income of $157,000 and $309,000 for the three-month and six-month periods ended June 30, 2012 respectively. The increase in net income expense for the three- and six-month periods ended June 30, 2013, was primarily due to the Company's higher level of cash available for temporary investments for the comparable periods in 2012 relative to 2013.

In addition, interest expense increased for the six month periods ended June 30, 2013, as a result of increased borrowings on the line of credit during the six months ended 2013. The company had $43,000 of other expense for the three-month and six-month periods ended June 30, 2013, compared to $22,000 and $85,000 in other income for the three-month and six-month period ended June 30, 2012, respectively. Other income expense for the period ended June 30, 2013 and 2012 primarily represented gains or losses on sales of property, plant, and equipment.

Income before taxes was $6.7 million compared to income before taxes of $11.5 million for the three-month period ended June 30, 2013, and June 30, 2012, respectively. Income before taxes was $11 million, compared to pretax income of $21.8 million for the six-month period ended June 30, 2013 and June 30, 2012 respectively. For the three-month periods ending June 30, 2013 and June 30, 2012, income expense was $2.4 million, compared to $3.9 million. For the six-month periods ended June 30, 2013 and June 30, 2012, income tax expense was $3.9 million, compared to $7.4 million. Our effective income tax rate for the three-month and six-month periods ended June 30, 2013, was 36.3% and 35.8% respectively, compared to an effective tax rate of 34% for the comparable periods of 2012.

Net income for the three-month period ended June 30, 2013 was $4.3 million, compared to net income of $7.6 million for the three months ended June 30, 2012. Net income for the six-month period ended June 30, 2013 was $7.1 million, compared to a net income of $14.4 million for the six months ended June 30, 2012.

Basic and diluted earnings per share were $0.30 per share ended June 30, 2013 and $0.52 for the three-month period ended June 30, 2012. Basic and diluted earnings per share were $0.49 for the six-month period ended June 30, 2013, and $0.99 for the six-month period ended June 30, 2012. We declared unpaid cash dividends of $0.10 per share during each of the quarters ended June 30, 2013 and June 30, 2012. Revenue back log was $433.8 million, with a labor back log of 3.6 million hours remaining to work at June 30, 2013, compared to a revenue back log of $537 million and labor back log of 4.4 million hours remaining to work at December 31, 2012.

The following represents selected balance sheet information for June 30, 2013, compared to December 31, 2012. Cash and cash equivalence were $29.7 million compared to $24.9 million. Total current assets were $198.3 million, compared to $173.6 million. Net property, plant, and equipment was $224.3 million, compared to $229.2 million. Total assets were $436.8 million and $403.5 million respectively, and total current liabilities were $122.4 million and $92.3 million at June 30, 2013, and December 31, 2012 respectively.

Other financial information for the three months ended June 30, 2013, compared to June 30, 2012 were as follows; pass through costs were 53.1% of revenue, compared to 42.1% of revenue. Labor hours worked were 1.1 million, compared to 1.3 million. Other financial information for the six months ended June 30, 2013, compared to June 30, 2012 were as follows; pass through costs were $54.7 million of revenue, compared to 39.1% of revenue. Labor hours worked were 2.1 million, compared to 2.5 million.

Back log information for June 30, 2013, compared to December 31, 2012, was as follows; revenue back log was $433.8 million, compared to $537 million. Remaining labor hours to work was 3.6 million, compared to 4.4 million. Revenue back log for deep water projects was $358.7 million, or 82.7%, compared to $393.3 million, or 73.2%. Of the back log at June 30, 2013, we expect to recognize revenues of approximately $267 million during the remaining six months of 2013, not including change orders, scope growth, or new contracts that may be awarded. Approximately $125 million of back log is expected to be recognized as revenue in 2014, and approximately $42 million of back log is expected to be recognized thereafter.

We had 2,034 employees and 548 contract employees at June 30, 2013, compared to 2,180 employees and 344 contract employees as of December 31, 2012. CapEx for the first six months of 2013 was $7.4 million. Approximately $11 million of CapEx is planned for the remaining six months of 2013, including $5.8 million of maintenance capital expenditures, $3.6 million of rolling equipment to replace aging rolling equipment in our Texas facility, and $1 million for improvements to the graving dock at our Texas facility.

We are currently operating at or near capacity for the projects in our back log. We expect labor hours to decrease slightly during the third and fourth quarters of the year, as we enter into the latter stages of our two major deep water projects. We do, however, have significant amounts of subcontractor service hours remaining for these projects. Therefore, pass through costs are expected to continue to remain relatively high for the third and fourth quarters 2013. Our continuing focus over the next several quarters will be the management of costs associated with our workforce and meeting schedule demands.

Operator, you may now open the call for questions.

Thank you.

(Operator Instructions)

We'll pause for a moment to allow everyone an opportunity to signal for questions. Our first question from John Ellison with BBT capital market.

Hi, good morning.

Good morning, John.

I wanted to know if you could give a little commentary and your market outlook for project activity in the Gulf. Do you expect to see a good amount of opportunities in the second half of 2013 and early 2014, or should we expect to see a slower progression in bidding activity?

Okay, John, good morning this is Kirk. There are a few projects out there from the deep waters side that we are tracking, again we anticipate one of those big deep water projects to bid in the latter part of the third quarter with remaining projects scheduled for fourth quarter and early first quarter of 2014. What we're seeing is a little bit of an uptick in terms of some of the shallow water projects that we're chasing, typical jackets and decks that may range in water depth from 150 to 400 foot in water depth and top sides on those platforms that may range from 500 to 4,000 tons. So there is a little bit of an increase in our bidding activity associated with the shallow water portion for the US Gulf as well as overseas. The bigger projects do have a tendency and look like they're pushed a little bit further to the right, but there is one in particular that we're chasing now and hoping to have the bid opportunity a little bit later in the third quarter of this year.

Okay, great, and my follow-up would be last quarter we talked a little bit about your capacity and how you that you might actually bumping up against it but there were two larger projects that were rolling off. I kind of wanted to get an update on that and how do you view your capacity in regards to these new projects especially the larger ones and if you win a couple of these over the next few quarter, are you still within a comfortable range for your operations?

Yes, John, certainly, again, we are coming down on the fourth quarter of this year with delivery of these two major projects we have. So certainly there is some opportunities there for continuing to pick up some additional work for our workforce. But looking forward on the work that's out there, certainly we have the capacity and the capabilities to complete these projects, and we will continue to monitor them as the projects are coming out. So right now, I think from the capacity standpoint, all our facilities are currently busy, you know, right now, we have ample workforce to meet the needs of the projects going forward. But again, fourth quarter we're going to start looking for some additional work going forward.

Okay, great. Thank you so much.

You're welcome, John, thank you.

We'll go to our next question from Martin Malloy with Johnson Rice.

Good morning. Congratulations on the quarter.

Thank you, Marty.

Could you talk about, I think with the change order that you signed on a large deep water project in March that there was the potential for some incentive payments as milestones were reached. Could you talk about that and what needs to happen to reach those?

Well, Marty, I think we had discussed that in the first quarter. There are some opportunities on several of our big projects, both big projects for deep water. Certainly the one that you're referencing, there are some opportunities, but again those modules are being completed as we speak. And, you know, we have not earned those incentives as of yet. We have to do our final negotiations of course with our customers and what not. But, again, there's always the potential that those incentives will not be met, but we are working hard towards them. None of those incentives have been booked in this quarter.

Okay. And then looking out over the next couple years, do you see opportunities on the module side related to build-out of chemical and pet chem facilities along the Gulf Coast?

Yes, Marty, there was a analyst question last time they were asking what we get excited about looking at the long time future for the oil and gas industry and certainly this big project that's been announced now through the Lake Charles facilities and other locations as well here in Louisiana as well as the state. There is certainly something that we're in tune to. We are speaking to these individuals, we're doing our presentations to them. But again, we're not sure exactly when these things will come out for bid or when they'll be awarded, but it looks like it's sometimes in mid-to latter part 2014 and we certainly want to position ourselves for that type of work.

Okay, I'll get back in queue. Thank you.

Okay, thank you, Marty.

We'll take our next question from John Ellison with BB and T Capital Markets.

Hey guys, just a couple more questions. First one is in regards to the labor cost inflation as you've -- down the gulf region, I know they've been issued for several players down there. I wanted to see if you could give me a little color on how this is impacting your profitablility now and if you expect it to subside I guess going forward?

Well, John, you're right. As the Gulf Coast continues to book up with work, and we all fight for the same labor pool and, labor is always an issue in terms of our costs going forward our projects, and certainly we try and put some type of contingencies in our numbers and certainly we're not always correct on the total numbers we put in there. But, I think it is easing off somewhat, I think as the remaining fabricator's get in a little bit of a slow down because some of these big deep water projects move a little bit to the right, I think that we may have a little bit of relaxation in terms of some of the pressure that's being put on from the cost standpoint from our perspective. John?

We will go ahead and take our next question. Martin Malloy with Johnson Rice, please go ahead.

Two more questions I had. One, could you talk about what you're seeing on the marine side and the demand there?

Sure, Marty, and by the way, I think we may have lost the last part of John, just hope John's still in the queue. But Marty to answer your question about the marine side of our business, we still see the marine side of the business very strong. We still have plenty of opportunities out there for bidding opportunities with new construction as well as our repair side of the business is doing very well. Our dry dock utilization remains high and we see that continuing through the third and fourth quarter of this year. That's one area right now that looks very good for us going forward with the remaining part of this year.

Okay. And then is there any update you can provide us on the Cheviot project and I think you were trying to sell some of the equipment previously.

Yes, Marty, this is Jeff. Let me start with letting you know that during the quarter, I think we said in prior disclosures that we entered into a particular contract with Blue Water and they were making installment payments, and there was a lump sum due at the end of that. Upon that default, which was April 1, ownership of the projects assets then reverted to Gulf Island. And so, that triggered some treatment where we then moved the net investment in contracts to assets held for sale. And those are also moved to assets held for sale long term, so if you look at working capital, it's a non-cash amount of $13.5 million that would impact that working capital. So I'll let Kirk maybe talk to you about what's currently going on with regard to marketing activities and that sort of thing, but I just wanted to make sure you understood that part.

Marty, again, this is Kirk. Just to let you know, we are out there, we are soliciting, the equipment, not only the equipment, but also the raw material we have. We've identified several independent operators that have an interest in some or parts of this thing. We will continue that through the third quarter, again we've got a pretty good marketing effort pushing this thing forward for Q3 as well as Q4 and again, there's a lot of interest in the stuff we have. Right now, I think it's just a matter of timing and hopefully we'll see some of that material start to move within the latter part of third quarter, probably first part of fourth quarter this year.

Okay, great. Thank you.

You're welcome.

And John Ellison has come back into the queue. John, go ahead, please.

Yes, sorry about that I had some technical difficulties on my end. And Marty just asked about the Cheviot project, which I'm glad he asked about. There's some good color there. My last question would be, and this is relating to a little speculation on the continued operations of one of your competitors' large fab yards down the gulf. If this fab yard was too close, would you expect there to be a beneficial impact to Gulf Island's project prospects going forward or could this also lead to some labor costs subsiding?

Well, on two objects, first of all on the labor side, we would anticipate that it will lessen some of the need for the labor we have in the facilities here, and we are pursuing that avenue as we go forward. From the bidding aspect, it's very difficult, our competitive basis remains not only in Louisiana but in Texas and now of course the overseas market so, one would think that possibly it may put Gulf Island in a better position but I'm not sure that we fully agree with that position going forward. Again, there's always competitors out there and as one goes away, there's another one that's trying to pop up and take its place, so from the competitive side of our business, we just need to remain competitive, keep our operating costs down so we can remain competitive going forward in these projects.

Okay, great. Thank you so much.

Okay, John.

And that was the last question from our analysts today.

Okay. Well, we certainly appreciate everyone listening to our conference call, and we look forward to speaking to everyone again in our third conference call this year. Thank you for joining the conference.

And that concludes today's conference call. Thank you for your participation.