Gulf Island Fabrication Inc (GIFI) 2013 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication, Inc., Q4 2013 earnings conference call. (Operator Instructions) 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 fourth-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 price 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 March 13, 2013. The 10-K 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. Jeffery Favret, our CFO. Mr. Meche?

Thank you, Deborah. In an effort to provide our listeners with the most useful and comprehensive information available, we will be handling our calls in a different format from this point on. I will provide updates on existing projects, a general overview of the market, and opportunities that exist for our Company. The call will then be turned over to Mr. Jeff Favret, our Vice President of Finance and CFO, for a breakdown of financial information for the fourth quarter of 2013. At the conclusion of Mr. Favret's report, we will open the lines for questions.

I will begin with an update on the projects currently under contract. At our Texas facility, we successfully completed and loaded out the first SPAR hull ever built in the United States on February 8 of this year. The final lightship weight of the hull was 15,300 tons and drafted out at 29.5 feet.

On a separate project, work continues on a 1,200-foot jacket destined for the Gulf of Mexico, and work has commenced on its 4,000 ton topsides. Deliveries for these units are scheduled for late summer 2015.

We were recently awarded the piles for this project and expect to commence work on the piles later this summer. We have also commenced work on two tank barges for a Louisiana customer with delivery set for third quarter of 2014.

At our Louisiana facilities, the 7,000-ton topsides for the SPAR hull I referenced earlier was successfully loaded out this past week. We are in the process of final tiedown and cleanup of the unit and it should sail later this week.

Work continues on several jackets and topsides for shallow-water destinations. Planning, scheduling, and related efforts for offshore hookup and integration for a large deepwater platform is gearing up and set to commence next month.

We continue to work on several vessels including a large liftboat scheduled for delivery in the latter part of the third quarter of this year, as well as two offshore supply vessel scheduled for delivery this summer and the latter part of this year, respectively. Our drydock remains active with opportunities for work going forward.

We expect bids for deepwater projects to be available until 2013 with a higher level of bidding activity in third quarter of 2014. Bidding activity for nontraditional Gulf of Mexico marine-related projects, overseas, shallow-water projects, and support work associated with deepwater structures are expected to increase from current levels over the next three quarters.

As discussed on our most recent earnings call, during the quarter ended September 30, 2013, we began discussions with one of our large deepwater customers concerning its request for a reduction in scope of the project, whereby remaining completion and integration work would be performed at the lift site by a different integration contractor. During the fourth quarter of 2013, we negotiated closeout of all of our subcontractors and are in active negotiations regarding the final closeout and settlement of the contract with our customer.

Based on these discussions, we recognized a loss on the contract for the fourth quarter of $18.2 million. We expect to finalize the closeout of this contract in the first quarter of 2014.

Before proceeding to the financial review, I am happy to report that our Houston corporate office is fully operational. We believe this provides a distinct advantage by allowing us to be in close proximity to many of our customers.

As Jeff will explain in further detail, 2013 marked a Company record in annual revenue. While we were encouraged by this success, we continue to look at ways to control project costs, to maximize margins, maintain our focus on quality standards, and enhance our fabrication capabilities while providing shareholder value.

I would now like to turn the call over to Mr. Jeff Favret, who will discuss our financial performance for quarter 2013. Jeff?

Thank you, Kirk; and good morning, everyone. I'll discuss highlights from the quarter, provide specifics on our financial performance, and then we will open the call for your questions.

Our fourth quarter proved to be a challenging one. Revenue for the three months ended December 31, 2013, was $135.1 million, and $129.2 million for the comparable-period 2012. Gross loss was $1.8 million for the three-month period ended December 31, 2013, compared to a gross loss of $9.4 million for the same-period 2012.

Operating loss was $4.6 million for the quarter ended December 31, 2013, compared to an operating loss of $12 million for the comparable-period 2012. And the net loss for the three-month period ended December 31, 2013, was $3.1 million or $0.22 a share, compared to a net loss of $8.1 million for the three months ended December 31, 2012, or $0.56 a share.

The increase in revenue of 4.4% for the fourth-quarter 2013 compared to the fourth quarter 2012 was primarily due to continuation of work related to change orders received in the prior quarter for a large deepwater hull and related topside projects, offset by reduction in revenue of $18.2 million in connection with negotiations toward a final settlement for a descoped project with a separate large deepwater customer that Kirk referred to earlier.

Despite the challenges associated with this project, we had total annual revenue of $608.3 million in 2013, representing our highest historical performance to date for Gulf Island. The decrease in our gross loss for the three months ended December 31, 2013, compared to the fourth quarter 2012 was due to stronger margins associated with revenue recognized during the fourth-quarter 2013 for change orders related to a large deepwater hull and topside project, offset by $18.2 million loss referred to earlier.

The following represent selected balance sheet information for December 31, 2013, compared to December 31, 2012. Cash and cash equivalents were $36.6 million compared to $24.9 million. Working capital was $89.7 million versus $81.3 million.

Net property, plant, and equipment was $223.6 million compared to $229.2 million. Total assets were $426.2 million and $403.5 million, respectively.

CapEx for the year was $21.4 million. Approximately $17 million of capital expenditures are planned for the quarter ending March 31, 2014, primarily for the purchase of two 660-ton-capacity crawler lift cranes for our Texas facility.

We declared and paid cash dividends of $0.10 per share during each of the quarters ended December 31, 2013, and 2012.

I will now turn to our backlog information. Revenue backlog was $358.7 million, with a labor backlog of 3.3 million hours remaining to work at December 31, 2013, compared to a revenue backlog of $537 million and labor backlog of 4.4 million hours remaining to work at December 31, 2012.

Additional backlog information for December 31, 2013, compared to December 31, 2012, is as follows. Revenue backlog for deepwater projects was $224.5 million or 62.6%, compared to $393.3 million or 73.2%. Of the backlog at December 31, 2013, we expect to recognize revenue of approximately $321 million or 89.5% during the calendar year 2014, and $37.7 million or 10.5% during the calendar year 2015, not including change orders, scope growth, or new contracts that may be awarded.

We had 1,900 employees and 467 contract workers at December 31, 2013, compared to 2,180 employees and 344 contract workers as of December 31, 2012. For the three months ended December 31, 2013, labor hours worked were 951,000, compared to 1.1 million for the same period 2012. Passthrough costs were 63% of revenue compared to 58.5% of revenue for the three months ended December 31, 2013, versus 2012.

We expect labor hours to decrease somewhat during the first quarter 2014, as a result of having completed the SPAR hull and as we enter into the latter stages of the related topside project, in addition to poor weather conditions that we are experiencing at both our Texas and Louisiana facilities quarter to date. Lastly, I can tell you that we continue to see interest in our assets held-for-sale associated with the Cheviot project and have no reason to doubt that the ultimate disposition will net at a minimum our reported value of $13.5 million.

So in conclusion, 2013 represented our highest revenue year to date. We have completed the first US-built SPAR hull; and on a separate large deepwater project we are in active negotiations concerning a final settlement to conclude the descope project. As a result of this we expect to see overall improved margins for the first-quarter 2014.

Operator, you may now open the call for questions.

(Operator Instructions) Jim Rollyson, Raymond James.

Good morning, guys. Welcome to Houston.

Good morning. Thank you, Jim.

Kirk, I guess the first question, just -- if you go through and back out the $18.2 million charge related to the project this quarter, it implies margins were crazy good otherwise, and better than they have been in a while. I am trying to understand if that is a fair comparison, or if this project has been a drag on margins for a while and you probably just took the rest of it. I am trying to get apples-and-apples understanding of how the rest of your business is doing ex this charge.

Jim, look, that is an excellent question; and, yes, we appreciate you pointing that out to all the listeners. Yes, the project has been a challenge for almost two years now. As we said, it was a difficult project; contractual terms in it were difficult.

So it has been dragging us down for at least four or five quarters now. So, yes, we have got to the point now where we are in final negotiations, as Jeff had said, with our customer, and we expect to have improved margins going forward on the remaining projects we have. So I think that is an excellent analysis that you have done, and we thank you for pointing it out.

Does that imply, beyond the weather issues you mentioned in the first quarter, that you can get back up to the overall gross margins in the double-digit range?

Well, we certainly won't provide any forward-looking statements or advice on that. But yes, it is our goal to increase our margins.

We have had numerous meetings with our division managers and trying to emphasize the importance of getting those margins up. Yes, I would like to tell you that that is our goal going forward. We want to return to decent margins.

We want to concentrate on projects that have a lot less risk associated with them, but at the same time can give us some pretty high margins. So that is our goal going forward.

That's helpful. Last one for me, and let somebody else in here. Just on the deepwater projects, I think you mentioned you see a fair number of bids coming up in the second half of this year. What is that -- what are you seeing in terms of magnitude of projects out there? And Is this stuff starting late 2014 or more 2015?

Well, it's typical. At year-end we always see these projects, and we have them in our radar screens. And as the year comes about we see some of these projects start moving a little bit to the right.

As the magnitude of project comes about and some of these oil companies are looking at it in terms of total capital investment with it, I think they have a tendency at times to pull back a little bit and look at all their options associated with what type of facilities they want, whether it's tieback or a different philosophy in terms of growth on these topsides. But we see a couple of them out there; but again in the meantime, we do see a little bit of activity picking up for the shallow-water items that we typically have done very well in the past.

We continue to see that growth going forward within the next two quarters. So our model is to try and attain some of these projects and fill in the gaps when these big projects are let. We believe that we are bidding one of them actively now; one of them has been pushed back. We probably won't see any awards on these things until probably 2015, early.

Okay. Very helpful color. Appreciate it.

(Operator Instructions) Martin Malloy, Johnson Rice.

Good morning. Congratulations on getting the settlement behind you there. Could you talk a little bit about the competitive environment now that Morgan City has shut down, as far as the market there for the topsides for the deepwater in the Gulf of Mexico?

Yes, sure, Marty. You know, again, certainly the facility shutdown in Morgan City is something that is not good for our industry, quite honestly. Puts a lot of folks on the street, which is not anything that we are happy to say.

But I think there's some competitive advantage of going forward with the Gulf of Mexico. We have always said majority of our competition comes from one of our major competitors in South Texas, and the remaining competition comes from our overseas markets. I think as we begin to see some of these projects grow in size and then we see some -- these large vessels coming online with dock-wise and whatnot, I think there is going to be more of a competitive push to try and get some of these things built in one location where they can actually do the hulls, topsides, integrate it at the facilities, and bring it over to the Gulf.

So again, I think our major competitor going forward on these large topsides is going to be the one competitor down in South Texas as well as our overseas markets.

Okay. Could you maybe address the opportunities out there as far as the modules for some of the petchem and chemical facilities along the US Gulf Coast? And maybe also the marine market; are there opportunities to use the graving dock for some other projects besides the SPARs?

Yes. Sure, first of all on the petro market, again, we're all chasing one big large project in Lake Charles. We have had meetings over the last couple weeks with the owners on this thing.

They're still running into a little bit of problems with permits and whatnot, so the project has moved a little bit to the right. But again, nonetheless, the projects will happen and we continue to put ourselves in a position where we have the opportunity to bid on these projects and be competitive.

On the marine side, again, when you talk about the marine division here in Louisiana, again I think our opportunities are very strong going forward, especially with our graving dock and the amount of repair work we see coming up. As far as for the graving dock itself, again we are actively pursuing additional concepts out there that may lend itself not only to the Gulf of Mexico but overseas markets.

And then, of course, it is always available for vessel-type repair and whatnot. So we see quite a bit of opportunities out there coming up within probably the second quarter of this year.

And again -- so we broadened our horizon a little bit in terms of what we can utilize on that graving dock and we can put in it. That is our marketing scheme going forward, to utilize that asset we have down in South Texas.

Thank you. I will get back in queue.

(Operator Instructions) Martin Malloy, Johnson Rice.

I'm back.

Welcome back, Marty.

Could you talk maybe some about the potential uses of cash? And would there be a possibility that you all would consider putting in place some type of share repurchase program?

Yes, Marty, this is Jeff Favret. We consider all of these things. As you know that we are a very capital-intensive Company and we have historically had low levels of debt, and so we like that model. We are certainly looking at the potential of putting in a rebuy plan into place and have been looking at that.

We are also looking at other uses of cash that might have a better value for us. So we are looking at a lot of different things, including capital investments as well as maybe other uses of cash, and also the potential of a buyback. So nothing is off the table really.

Okay, thank you.

(Operator Instructions) It appears there are no further questions at this time, so I would like to turn the call back over to our speakers for any additional or closing remarks.

Okay. Thank you, Alan. This concludes our call and we thank everyone for listening in. Our next earnings call will be late April of this year where we will discuss the results for first-quarter 2014. Have a good day. Thank you.

That does conclude today's conference. If you would like to access the replay of today's call, you may do so starting at 12 o'clock Eastern Time by dialing 719-457-0820, or toll-free at 1-888-203-1112; reference the code 635-5813. We thank everyone for their participation.