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EDITED TRANSCRIPT
GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
CORPORATE PARTICIPANTS
Cindi Cook Gulf Island Fabrication, Inc. - IR
Kirk Meche Gulf Island Fabrication, Inc. - President and CEO
Jeffery Favret Gulf Island Fabrication, Inc. - CFO
PRESENTATION
Operator
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.
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.
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
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
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?
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.
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
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.
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.
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
Operator
(Operator Instructions). Martin Malloy, Johnson Rice.
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
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.
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.
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
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.
So you will see a small trickle effect in terms of a dwindling of the backlog. We are hoping to get those numbers up.
Operator
(Operator Instructions). Will Gabrielski, Stephens.
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
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.
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.
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.
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JULY 25, 2014 / 2:00PM, GIFI - Q2 2014 Gulf Island Fabrication Inc Earnings Call
Operator
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.
Operator
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.
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