LAYN

Layne Christensen Company (LAYN)

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Layne Christensen (LAYN)

Q4 2011 Earnings Call

April 05, 2011 11:00 am ET

Executives

Andrew Schmitt - Chief Executive Officer, President and Director

Jerry Fanska - Principal Financial Officer, Senior Vice President of Finance and Treasurer

Analysts

Ryan Connors - Janney Montgomery Scott LLC

John Rogers - D.A. Davidson & Co.

Dan Stolper

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Layne Christensen Company's Fourth Quarter and Year End Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Andrew Schmitt, President and CEO of Layne Christensen Company.

Andrew Schmitt

Thanks, Evan. Good morning, everyone. It's good to be here. I'm with Jerry Fanska, our Chief Financial Officer, and we thank you for joining us on our fourth quarter and year end fiscal conference call. Early today, we issued a press release outlining the results for the fourth quarter and fiscal year ended January 31, 2011.

Before we discuss the financial results, I'd like to remind the participants that the call may contain forward-looking statements that are subject to the Safe Harbor statements found in today's press release. Jerry will take you through the financial results, and I'll give you an overview of division operating performance for the quarter, how we see things going forward.

Okay, Jerry?

Jerry Fanska

Thank you, Andy. Good morning, everyone. Revenues in the fourth quarter increased 19.7% to $271.8 million from $227.2 million in the prior year. Water Infrastructure revenues increased 16.3% for the quarter to $211 million, reflecting increases from acquisitions, additional activity in sewer rehabilitation and from our specialty drilling projects.

Mineral Exploration revenues increased 59.2% to $51.6 million in the quarter, with increased activity being reported across all locations. Layne energy division revenues decreased for the quarter 54% to $5.4 million, primarily due to less gas volumes sold and substantially lower gas prices. Cost of revenues for the quarter were slightly lower as a percentage of revenues than last year resulting primarily from improved margins in Mineral Exploration and from our work in Afghanistan.

Selling, general and administrative expenses increased to $39.7 million in the quarter from $34.7 million in the prior year. The increase was primarily a result of higher incentive costs coming from additional profitability and added expenses from acquired businesses and system implementation costs.

Depreciation, depletion and amortization decreased to $14.4 million in the quarter compared to $14.8 million in the prior year as a result of decreased depletion in our energy division. Equity and earnings of affiliates in Latin America increased to $5.4 million in the quarter from $2.7 million in the prior year reflecting the stronger Mineral Exploration market.

Interest expense decreased to $214,000 for the quarter, primarily a result of scheduled debt reductions. The effective tax rate for the quarter was 32.6% compared to 60% last year. The effective rate is lower this quarter due to the impact of nondeductible expenses and the tax treatment of certain foreign operations.

As earnings go up, nondeductible expenses have less impact on the effective tax rate of the company. The fourth quarter net income was $0.45 per share in earnings compared to $0.12 last year.

For the year, revenues hit an all-time company record of $1.025 billion, up 18.4% from the prior year. Revenues were up 12.9% in Water Infrastructure, 69.2% in Mineral Exploration, but down 43.9% in Energy. Cost of revenues for the year was 76.8% of revenues compared to 76.3% last year, resulting primarily from pressure on margins and heavy civil construction and energy.

Operating expenses, including SG&A, depreciation, amortization and depletion were up about $10.4 million or 5.6% from the prior year mainly reflecting increased incentive cost as earnings went up, added SG&A from acquisitions, consulting cost related to systems implementation, offset by lower depletion in the energy division due to adjusted reserve rates. Equity in earnings of affiliates increased this year to $13.2 million compared to $8.2 million last year, reflecting increased demand again for exploration in Latin America.

For the year, the company earned $30 million or $1.53 per share compared to $1.4 million or $0.07 per share last year. At January 31, the company's balance sheet reflected total assets of $810.2 million, stockholders equity of $501.7 million. Excluding current maturities, there was no debt and cash and cash equivalents of $45 million. Net cash from operating activities for the quarter and the year were $29.5 million and $68.2 million, respectively.

Investing activities totaled $24.6 million for the quarter and $93.2 million for the year. These activities included $1.1 million and $2.9 million in the quarter and year, respectively, for unconventional gas activities and $33.5 million for the year on M&A activity, with the remainder spent on property, plant and equipment.

With that, I'll turn it back over to Andy to talk about the operations.

Andrew Schmitt

Thanks, Jerry. From an operating standpoint in the fourth quarter, we had some real fine performance turned in within the various business units. In the Water, Drilling and Treatment side division, EBIT was $2,795,000 this quarter versus a loss of $1,235,000 last year on a revenue increase of 4.8%.

Our Specialty Drilling category, which includes both the Afghanistan water supply project and the deep wastewater injection well at Florida were a key factor in improving growth profit in the quarter. It was up to 25% versus about 18% a year ago. And that had the big positive impact on earnings.

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