LAYN

Layne Christensen Company (LAYN)

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Layne Christensen (LAYN)

Q1 2012 Earnings Call

June 08, 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.

Jay Chhatbar

William Nasgovitz - Heartland Funds.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Layne Christensen Fiscal 2012 First Quarter Earnings. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like introduce your host for today's conference, Andrew Schmitt, President and CEO.

Andrew Schmitt

Thanks, Devon. Good morning, everyone. I'm here with Jerry Fanska, our Chief Financial Officer. And we would like to welcome you to Layne Christensen's first quarter conference call. Earlier today, we issued a press release outlining the results for the first quarter ended April 30, 2011.

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

Jerry Fanska

Thank you, Andy. Good morning, everyone.

Revenues for the first quarter increased $36.7 million or 15.9% to $267.4 million from $230.7 million in the prior year. Water Infrastructure revenues increased $23.2 million or 13.4% for the quarter to $196.1 million. During the quarter, revenues from previously acquired and start-up operations increased $14.9 million, accounting for most of the Water Infrastructure increase. Mineral Exploration revenues increased 36.8% to $62.8 million with increased activity across all regions. Layne Energy revenues decreased 40.7% to $5.7 million attributable to the expiration of favorably priced forward sales contracts and to a lower natural gas price.

Cost of revenues increased $28.3 million to $200.2 million or 74.9% of revenues for the 3 months ended April 30, compared to $171 million -- $171.9 million or 74.5% of revenues for the same period last year. Selling, general and administrative expenses increased $40 million in the quarter from $33.5 million in the prior year, primarily the result of increased compensation-related expenses of $2.2 million and $1.2 million in expenses from acquired operations. Depreciation, depletion and amortization increased in the quarter to $15.1 million from $14.1 million, primarily due to acquisitions and property additions, offset by $1.9 million lower depletion in the Energy division resulting from updated estimates of economically recoverable gas reserves.

Equity in earnings of affiliates increased 149.3% to $4.7 million in the quarter, due to improved mineral exploration markets in Latin America. Interest expense decreased to $344,000 for the quarter as a result of scheduled debt reductions. Other income and expense for the quarter of $6.9 million included a gain of $5.1 million on the sale of a facility in California, and the remainder were primarily gains on sales of other assets.

The income tax rate for the quarter was 41.5% compared to 47% in the prior year. The decrease in the effective rate is primarily attributable to a lesser tax impact of certain foreign operations and foreign affiliates.

The net result for the quarter was $0.66 per share on earnings compared to $0.34 per share last year. Excluding the onetime gain on sale of our California facility, EPS was $0.51 per share versus $0.34 per share last year.

The company's balance sheet at April 30, 2011, reflects total assets of $873.2 million; stockholders’ equity of $517.6 million; total long-term debt of $35.2 million, excluding current maturities of $6.7 million; and cash and cash equivalents of $47.3 million. The company used $4.6 million in cash from operating activities in the quarter. Investing activities totaled $25.5 million, net of proceeds from equipment sales. The investing activities included $745,000 in unconventional gas expenditures, an acquisition of $8.9 million and the remainder primarily for property, plant and equipment additions. With that, I'll turn it back over to Andy to talk about the operations.

Andrew Schmitt

Thanks, Jerry. Turning to the operations, the quarter continue to be paced by our Mineral Exploration division. Our wholly owned Mineral Exploration division revenue of $62.8 million was, as Jerry mentioned, up 37% from last year; while EBIT, at $12.7 million, is up 89%. And of course, our share of the net after-tax income of our Latin American affiliates was $4.5 million, up 143% from last year.

The group of companies that comprise these joint ventures had revenue of $98.5 million and an EBIT of $14.5 million, which is up 52% and 39%, respectively. As strong as our wholly owned MinEx division is, our Latin American affiliates have even been stronger in this year-over-year comparison.

The second quarter is currently forecast to be similar to the first of these businesses, barring any execution problems. Prices are pretty much set for the work we have, and only if current shorter-duration jobs finish up and new ones are added will there be much more opportunity for price increases. We are ramping up training in Latin America in anticipation of increased demand on the existing contracts we have. In this case, we'll be adding rigs to accommodate higher activity later this year.

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