Gulf Island Fabrication Inc (GIFI) 2014 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication, Inc. Q2 2014 earnings conference call. (Operator Instructions). Today's call is being recorded.

At this time I would like to turn the conference over to Ms. [Cindi Cook] for opening remarks and introductions. Ms. Cook, please go ahead.

Thank you, Anna. I would like to welcome everyone to Gulf Island Fabrication's 2014 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 extensive 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 March 7, 2014.

The 10-K was included as part of the Company's 2013 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 Chief Financial Officer, and Mr. Todd Ladd, our Chief Operating Officer. Mr. Meche.

Thank you, Cindi and good morning to all of our listeners. I will provide updates on existing projects, a general overview of the market and the opportunities that exist for our Company. I will also touch briefly on the cooperative agreement we signed yesterday with Bechtel Oil, Gas, and Chemicals. I will then turn the call over to Mr. Jeff Favret, our Vice President of Finance and Chief Financial Officer, for a breakdown of the financial information for the second quarter of 2014.

At the conclusion of Mr. Favret's report, we will open the line for questions.

I will begin with an update on the projects currently under contract. At our Texas facilities, we continue to fabricate a 1200 foot jacket that associated piles and topsides for a Gulf of Mexico destination. Deliveries for these units were scheduled for late summer 2015. We also continue to fabricate two tank barges with delivery set for third quarter of 2014. We also are in the process of receiving material for a pile job in which the award was received during this quarter.

At our Louisiana facilities, work continues on several jackets and topsides for shallow water projects which include domestic and foreign locations. Efforts for a major offshore hookup and integration project for our large deepwater platform in the Gulf of Mexico continues with work anticipated to complete in the latter part of this year. We continue to work on several vessels, including the large lift boats scheduled for delivery in the latter part of the third quarter of this year, as well as two offshore supply vessels scheduled for delivery this summer and the latter part of this year, respectively.

As recently announced, we are preparing for the construction of two River tow boats scheduled for delivery in the second quarter of 2015. Our drydock remains active with opportunities for work going forward.

Now on to the market conditions. We expect bids for deepwater projects to be available in the latter part of 2014 or early 2015. We had seen these projects continue to push to the right over the last several months and believe this trend to continue. Bidding activity for shallow water projects, nontraditional Gulf of Mexico marine-related projects, wind projects, and support work associated with deepwater structures are expected to increase from current levels over the next two quarters.

In prior quarters, we spoke about strategic plans to acquire the opportunity to obtain additional work, which included, but was not limited, to teaming, partnering or joint venturing with several companies for opportunities that exist. Yesterday, we issued a press release announcing the cooperative agreement we signed with Bechtel Oil, Gas, and Chemicals. We will combine the talents and expertise of each of our respective companies to pursue EPC and EPCI contracts. This will give us greater opportunities to markets in the Gulf of Mexico as well as overseas.

We are extremely excited about the possibilities that exist for this type of arrangement and what we collectively offer to our clients.

Before I conclude, I would like to say a few words about our founder and Director-Emeritus, Mr. Alden J. -- Doc -- Laborde. Doc passed away during the second quarter of this year. He was a pioneer in the oil and gas industry with many contributions to this industry including the formation of offshore skid fabrication in 1985. We were honored to have known and worked with this gentleman. He will be sadly missed, but never forgotten.

I would now like to turn the call over to Mr. Favret, who will discuss our financial performance for the second quarter, 2014. Jeff?

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

We had another solid quarter with net income of $4.3 million or $0.30 per share compared to net income of $4.3 million or $0.30 per share for the second quarter of 2013. Revenue for the three months ended June 30, 2014, was $129.2 million compared to $154.6 million for the three -- I'm sorry, for the prior year quarter. Gross profit was $10.3 million for the second-quarter 2014 representing and 8% profit margin compared to $9.7 million or 6.3% profit margin for the second-quarter 2013 and $8.8 million or 6.5% for the sequential quarter.

The decrease in revenue of 16.4% for the second-quarter 2014 compared to the prior year quarter was primarily due to substantial revenue for the three large deepwater projects recognized during the second-quarter 2013. Consistent with increases in gross profit for the first-quarter 2014, the increase in gross profit for the second-quarter 2014 compared to the prior year quarter is primarily due to improve margins associated with the fabrication and installation of offshore skid and other short duration projects during the second-quarter 2014. And suppressed margins in the prior year quarter due to losses experienced in connection with our large deepwater contract.

The following represents selected balance sheet information for June 30, 2014, compared to December 31, 2013. Cash and cash equivalents were $31.4 million compared to $36.6 million. Working capital was $84.6 million versus $89.7 million. Net property plant and equipment was $231.9 million compared to $223.6 million and total assets were $379.8 million and $426.2 million, respectively.

CapEx for the second-quarter 2014 was $10.7 million, primarily for the purchases of a 660 ton capacity crawler lift crane and other equipment. Approximately $10.2 million of capital expenditures are planned for the remainder of 2014, including approximately $4.1 million of maintenance capital expenditures at our Texas and Louisiana facilities, $1.1 million for yard improvements at our Texas facility, and another $2.1 million for a plate roller at our Texas facility.

We declared and paid cash dividends of $0.10 per share during each of the quarters ended June 30, 2014, and 2013.

I will now turn to our backlog information. Revenue backlog was $223.8 million with a labor backlog of 2.1 million hours remaining to work at June 30, 2014, compared to a revenue backlog of $271.4 million and labor backlog of 2.5 million hours remaining to work at March 31, 2014. Revenue backlog for deepwater projects was $129.8 million or 58.1%, compared to $171.1 million or 63.1% for the sequential quarter. Of the backlog at June 30, 2014, we expect to recognize revenue of approximately $164.1 million or 72.8% during the remaining six months of 2014 and $58.6 million or 26.7% during the calendar year 2015 not including change orders, scope growth, or new contracts that may be awarded.

We had approximately 1,900 employees and 200 contract employees at June 30, 2014, compared to approximately 2,000 employees and 250 contract employees as of March 31, 2014. Labor hours worked during the quarter were 978,000, compared to 953,000 hours for the sequential quarter.

Operator, you may now open the call for questions.

(Operator Instructions). Will Gabrielski, Stephens.

Good morning. First on the Bechtel agreement. It sounds like you have maybe limited ability to talk too much about it, but can you talk about how it came together and what -- you mentioned EPCI, where the I would come from?

Well, yes, sure and you are right. We have been working on this for probably close to � right at a year now trying to get Bechtel and Gulf Island aligned. As we identified it within the markets we knew that we were limited on what we could bid and couldn't bid.

As these owners continued to push risk down to the right, to the fabricators, we saw the need for more of an EPC and EPCI type contract. And certainly with Bechtel they offer the engineering aspect that we were missing. And also they also offer their strong procurement they do worldwide as well as project management, their contacts and basically what will happen in this arrangement we will identify projects as we go forward and we will determine who will take the lead in the projects. And, again, it would depend on the scope of work which may also include insulation portion of it that Bechtel has been accustomed to in the past.

Okay, very helpful. It sounds like -- so, if I look at the margin this quarter, 8% gross and you are talking about it sounds like better margins on your book and burn work. Are the large projects or the remaining backlog you have left on your large projects, is that still a headwind to that gross margin? As that winds down, does the margin continue to pick up all else being equal?

I think, as we wind down on that big project, for sure, again, assume that we are going to have no issues as the project winds down which is -- you have got to be careful with these big projects going forward. We anticipate the margins to be close to where they are now. I don't see any real major swing in the margin itself in the large deepwater project we have got out there. I think we have got it well managed. It is under control. Things are going well with the project. I don't anticipate any major swing in that margin on that project.

Okay. And are you starting to see opportunities to move pricing a little bit higher on small work, given maybe tightening labor conditions on the Gulf Coast?

No. We really haven't. There's still -- as -- there's not a whole lot of big projects out there and as the big projects come down, sometimes it appears to be more competition from the aspect of not only a lot of the smaller players in the market, but also big players. So, I think the margins -- it's not giving us an opportunity just yet to go and really increase those margins. Downstream and upstream have not come together yet. The projects continue to push to the right and we would hope that once the downstream segment catches up with the upstream, you may see some improvement in margins.

Okay, thank you.

(Operator Instructions). Martin Malloy, Johnson Rice.

Good morning. Congratulations on the 2Q results.

Thank you.

On the -- and the Bechtel agreement. Could you talk about maybe with the Bechtel agreement, are there specific projects that you all have identified and maybe is there any help you can give us in terms of timing of when we might actually see something booked or announced under this agreement?

Sure, Marty. Might currently -- because we just signed agreement yesterday, we are working out all of the details, there are a few projects that we have tentatively identified, but nothing that we have come together to identify to say, this is the project we are going to go after. Again, we have got a few of them on a radar screen and we are going to start visiting with our customer base to help them understand the relationship we have with the two companies. And I think that will help open up some bidding opportunities now.

Again, I think Bechtel may have some opportunities overseas that we are not aware of at this point in time. So I don't anticipate having any immediate effect on this, but I would say that within the quarter or so, we will start seeing some opportunities for both companies to have the opportunity to bid on these projects, including deepwater projects that may not be destined for the Gulf of Mexico.

Okay. In terms of Bechtel's track record in terms of engineering for offshore projects, have they had a large presence within the Gulf of Mexico and internationally?

Marty, I don't want to speak on behalf of Bechtel, but Bechtel has had a large presence overseas. And they realized that they wanted to get a little more involved in the Gulf of Mexico and hence the relationship with Gulf Island. They have got some folks on board that certainly have been through the industry that have participated in the Gulf of Mexico on a lot of the sales bars. us. Some of these gentlemen have come from technique and whatnot.

So they have expertise in terms of engineering these large projects or the Gulf of Mexico. But again I would say that, predominantly, they have been overseas more so than they have been here in the Gulf of Mexico.

And it won't be just limited to projects in -- for the Gulf of Mexico. Again it may be some projects that may have some flavor in terms of modular type construction or whatnot. We are going to look at all different projects and make sure that it works best for both companies and see what we can do going forward.

So, again, but we are very excited about this, to have this announcement with Bechtel. We think it opens up a lot of opportunities for both companies with the strength we have and again we are pretty excited going for it. So I think within the next quarter we will probably make some additional announcements on how this is really structured and going forward. But, again, we are pleased to have them on board with us.

Okay. And in terms of some of the shallow water fabrication opportunities both for topsides and jackets. Can you talk about what you are seeing both not only in the Gulf of Mexico, but maybe some international opportunities and what you are expecting in terms of timing of those awards and you have historically done a few projects in West Africa.

Yes.

Maybe talk about that and then any projects in the Latin America region and time -- potential timing of awards when we could start to see the backlog inflect.

Yes. Sure, Marty. Again, when we identify projects we currently are tracking some 40 projects that have shallow water components as well as other type of components. And it is a mix between domestic and foreign. There are several projects that we have bids outstanding currently in not only for domestic market, but also for foreign markets that we are hoping that these owners will make some award within the next couple of weeks, quite honestly.

But, again, everyone's subject to last minute, these projects have a tendency to be pushed a little bit to the right. We would have expected some of these projects to have been awarded by now. For whatever reason delays of permitting, whatnot they are being pushed back for about a month.

So, we are hoping to see a little uptick in the market in the next couple of weeks to next month. And again, so that activity remains very strong for us going forward. There is, again, there is a strong presence and strong need for shallow water opportunities. And again, as well as other opportunities as well. I know wind is out there as well. We are looking at opportunities for these windmills that's going to go up the Eastern Coast of the US and we are trying to position ourselves to be competitive in that market as well.

Okay. And the shallow water bids that you have outstanding, would these awards be of a size that might lead to a press release?

I think there may be a few of them that might lead -- lend itself to an announcement. But you know it is as we spoke about in the past. A lot of these platforms don't fit the criteria for an announcement and, hence, I think that is why you see the backlog, while it is dwindling, it is not dwindling at an alarming pace. It is a slow dwindle of the backlog and again that is associated with a couple of components. One is the offshore campaign that we don't book as revenue or backlog. And the second part, of course, is we are burning off our man hours, but we are picking up small projects where we don't announce it.

So you will see a small trickle effect in terms of a dwindling of the backlog. We are hoping to get those numbers up.

Okay, great. Thank you.

(Operator Instructions). Will Gabrielski, Stephens.

Can you talk about the risk sharing component of the Bechtel relationship and how you think you guys will be able to manage sitting down together and figuring out who is responsible for what and who is willing to take what risks and make -- a JVstructure, I think, has always been challenge -- or an agreement structure like this has always been challenging in the industry from that standpoint.

Well, Will, just to touch on it a little bit. I think until we really identify the projects themselves, I don't know that we can sit here and tell you how we are going to break down that risk going forward. I will tell you this. Our primary goal will be to go after the bigger projects where we anticipate Bechtel will take the lead on the projects. We will provide the labor and the facilities and Bechtel will provide the management of the projects going forward.

But, again, it is going to be a project by project specific basis and each project will have its own unique component as to risk that we are going to share amongst the companies.

Okay. When you look into planning for 2015, obviously you guys have a lot of work to do to get backlog up to a level that would be supportive of continuing to keep revenue in and around where it has been, exclusive of the deepwater project that is winding down. So, what are you planning as you go through your planning activities, how are you thinking about fixed costs and your flexibility around certain different cost variables when you look at what might be a down revenue year again?

Gosh, Will, again, we look at all the components we have in terms of tracking our projects and trying to see what's out there in terms of the big projects and making sure that we are not overstaffed in terms of having the ability to be competitive on the small stuff.

We are working on different components. We look at our Company and we are not just a one-off type company in terms of we only fabricate one type of component. There are other opportunities that are out there that we are talking to customers about. Nothing that we can say that we are actually bidding just yet, but, again, there are other components in the industry that may not lend itself to quite oil and gas type structures, but I really don't want to get too far ahead of myself in terms of telling you what we can perceive as a five-year plan going forward. But just know that we are out there. We are trying to make sure we have got ourselves well-positioned for the markets that we see immediately as well as the markets we see in the long term.

Okay. Then on the balance sheet, how are you thinking about continuing to use the balance sheet to create value beyond the dividend? Has any more thought gone into taking a look at that cash balance and possibly utilizing it to return some to shareholders?

Yes, Will, this is Jeff Favret. We are always looking at all of the capital allocation strategies. So, one of them could be the increased dividends. One could be a buyback program. We are certainly looking at that. We are looking at other activities, quite honestly, other uses for our cash.

And so we would say, and I think we said this in prior quarters, that nothing is off the table. We are willing to look at all of these capital allocation strategies, including the couple that you were referencing.

Very helpful. Thanks and nice job.

Thank you.

And this concludes today's question-and-answer session. At this time I would like to turn the conference over to Mr. Meche for any additional comments.

Okay. Well, we certainly would like to thank everyone for listening today. And we look forward to speaking with everyone next quarter. Thank you.

Thank you, sir. A replay will be available for today's presentation starting today, July 25th at 12 PM Central Time through August 1 at 12 PM Central Time. (Operator Instructions)

And that does conclude today's conference. We thank you all for your participation.