LAYN

Layne Christensen Company (LAYN)

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Layne Christensen (LAYN)

Q3 2012 Earnings Call

December 08, 2011 11:00 am ET

Executives

Rene J. Robichaud - President, Director, Member of Compensation Committee, Member of Nominating & Corporate Governance Committee and Member of Nominating & Corporate Governance Committee

Jerry W. Fanska - Principal Financial Officer, Principal Accounting Officer, Senior Vice President Of Finance And Treasurer

Andrew B. Schmitt - Chief Executive officer and Director

Analysts

Steven Fisher - UBS Investment Bank, Research Division

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Jonathan P. Braatz - Kansas City Capital Associates

John Rogers - D.A. Davidson & Co., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Layne Christensen's Fiscal 2012 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Andrew Schmitt, Chief Executive Officer. Sir, you may begin.

Andrew B. Schmitt

Thanks, Sam. Good morning, everyone. I'm here with Jerry Fanska, our Senior Vice President of Finance; Jeff Reynolds, our Chief Operating Officer; and Rene Robichaud, our President. And we would like to welcome you to Layne Christensen's third quarter conference call.

Earlier today, we issued a press release outlining the results for the third quarter ended October 31, 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 Rene will give you an overview of division operating performance and how we see things going forward.

Okay, Jerry, want to take us away?

Jerry W. Fanska

Thank you, Andy. Good morning, everyone. Revenues for the third quarter increased $25.1 million or 9.3% to $294.9 million from $269.8 million in the prior year. Water Infrastructure revenues increased $5.4 million or 2.6% for the quarter to $215.3 million. Revenues from business acquisitions increased $18.3 million and specialty drilling operations increased $8.6 million. These increases were partially offset by decreases of $11.2 million in non-acquisition-related geoconstruction operations and $7.3 million in heavy civil construction.

Revenues from our water well drilling work in Afghanistan also decreased $4.6 million from the prior year's quarter. Mineral Exploration revenues increased 39.6% to $72.1 million, another quarterly record, with increased activity across all regions. Layne Energy revenues increased 2.8% to $5.1 million from $4.9 million in the prior year.

Cost of revenues increased $19.5 million to $229.2 million for the quarter compared to $209.7 million in the same period last year and remained flat as a percentage of revenues at 77.7%. Margin pressures, especially in the Water Infrastructure's heavy civil construction unit, were offset by other product lines and divisions.

Selling, general and administrative expenses increased to $43.7 million in the quarter from $37.9 million in the prior year, primarily the result of $3 million of increased compensation-related expenses, $2.1 million of operating tax increases, $1.6 million in legal and professional costs and $1 million in additional SG&A from acquired operations. Included in the $3 million of compensation-related expenses are $2.4 million or approximately $0.07 per share of transitional cost associated with the retirement of the CEO and changes in other executive positions.

Depreciation, depletion and amortization increased in the quarter to $15.5 million from $12.8 million, primarily due to acquisitions and property additions.

Equity and earnings of affiliates increased 51.3% to a record $6.5 million in the quarter, $1.2 million from the Water Infrastructure affiliates and the remainder from minerals. The Water Infrastructure increase comes from the results of our Costa Fortuna affiliate and infrastructure projects in Brazil, and the Mineral Exploration increase is primarily the result of continued strong metals markets in Latin America in copper and gold.

Interest expense increased $700,000 -- increased to $700,000 from $337,000 for the quarter as a result of additional working capital requirements.

The effective income tax rate for the quarter was 30.7% compared to 38.7% in the prior year. The decrease in the effective rate was primarily attributable to the tax effect of a continued increase in the forecasted equity earnings of our affiliates as a percentage of overall forecasted pretax earnings for the year. This has, obviously, an effect on our effective income tax rate. The current effective rate estimate for the entire year is 39%.

The net result for the quarter was $0.45 per diluted share in earnings compared to $0.42 per diluted share last year. The company's balance sheet at October 31, 2011, reflects total assets of $899 million; stockholders' equity of $536.9 million; total long-term debt of $65.2 million, excluding current maturities of $84,000; and cash and cash equivalents of $44.5 million.

The company generated $19.4 million in cash from operating activities in the quarter. Investing activities totaled $16.9 million net of proceeds from equipment sales.

The investing activities included $24.9 million in property, plant and equipment additions and approximately $1 million in energy expenditures, offset by a release of $9 million net in restricted cash associated with the previously disclosed Fontana, California real estate transaction.

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

Rene J. Robichaud

Thanks, Jerry. Just a few comments on our consolidated results. It's interesting that all 3 of our divisions had higher revenues in the third quarter despite the economic headwinds. I also appreciate that our cost of revenues were flat at 77.7%, despite at least a couple, what I will say, short-term expenses in SG&A. One includes legal expenses and travel of $1.6 million in the quarter or $0.04 per share. Part of that, of course, has to do with our FCPA investigation. And the other is $2.4-million expense or $0.07 per share in our executive transition cost.

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