Gulf Island Fabrication, Inc. (GIFI)

GIFI 
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Gulf Island Fabrication, Inc. (GIFI)

Q2 2013 Earnings Call

July 26, 2013 10:00 am ET

Executives

Deborah Kern-Knoblock - Secretary

Jeff Favret - Chief Financial Officer

Kirk J. Meche - Chief Executive Officer, President, Treasurer and Director

Analysts

John A. Allison - BB&T Corporation

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Presentation

Operator

Good morning, and welcome, ladies and gentlemen, to the Gulf Island Fabrication Second Quarter 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.

Deborah Kern-Knoblock

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 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. Jeffrey Favret, our CFO. Jeffrey?

Jeff Favret

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 3 months ended June 30, 2013, was $154.6 million compared to $137.2 million for the 3 months ended June 30, 2012. Cost of revenue was $144.9 million for the 3 months ended June 30, 2013 compared to $123.3 million for the 3 months ended June 30, 2012. Gross profit was $9.7 million or 6.3% of revenue for the 3-month period ended June 30, 2013 compared to gross profit of $13.9 million or 10.1% of revenue for the 3 months ended June 30, 2012.

The following are the results of operations for the 6 months ended June 30, 2013 compared to the 6 months ended June 30, 2012. Revenue was $305 million compared to $250.3 million. The 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 3 months ended June 30, 2013 compared to the 3 months ended June 30, 2012 was due to the 2 factors. $55.3 million in revenue was recognized from pass-through costs, excluding pass-through costs for a large deepwater 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 deepwater 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 6 months ended 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 3-month comparison, the decrease in gross profit for the first 6 months 2013 compared to the first 6 months 2012 was due to 2 factors. $110.8 million in revenue was recognized from pass-through costs excluding pass-through costs for a large deepwater project. An additional $88.8 million of revenue was recognized from the large deepwater projects, which had a negative impact on our gross profit recognized for the 6-month period ended June 30, 2013.

General and administrative expense were $2.9 million and $5.2 million for the 3-month and 6-month periods ending June 30, 2013, respectively, compared to $2.6 million and $5.2 million for the 3-month and 6-month periods ended June 30, 2012, respectively. As a percentage of revenue, general and administrative expenses for the 3-month and 6-month periods ending June 30, 2013 were 1.8% and 1.7%, respectively, compared to 1.9% and 2.1% for the 3-month and 6-month periods ended June 30, 2012, respectively. For the 3-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 ended 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 3-month and 6-month periods ended June 30, 2013, respectively, compared to net interest income of $157,000 and $309,000 for the 3-month and 6-month periods ended June 30, 2012, respectively. The increase in net income expense for the 3- and 6-month periods ended June 30, 2013 was primarily due to the company's higher level of cash available for temporary investments for the comparable period in 2012 relative to 2013.

In addition, interest expense increased for the 6-month period ended June 30, 2013 as a result of increased borrowings on the line of credit during the 6 months ended 2013. The company had $43,000 of other expense for the 3-month and 6-month periods ended June 30, 2013 compared to $22,000 and $85,000 in other income for the 3-month and 6-month period ended June 30, 2012, respectively.

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