Gulf Island Fabrication, Inc. (GIFI)

GIFI 
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Gulf Island Fabrication, Inc. (GIFI)

Q2 2008 Earnings Call Transcript

July 25, 2008 10:00 am ET

Executives

Deborah Knoblock – IR Coordinator

Robin Seibert – CFO

Kerry Chauvin – CEO

Analysts

John Fitzgerald – Raymond James

Joe Agular – Johnson Rice & Company

Robert Kosowski [ph] – OFI Institutional

Presentation

Operator

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication Incorporated 2008 second quarter earnings release conference call. All participants are in a listen-only mode for the duration of the presentation. We will follow today’s presentation with a question-and-answer session. 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 Knoblock

I would like to welcome everyone to Gulf Island Fabrication's 2008 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 3, 2008. The 10-K was included as part of the company's 2007 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. Kerry Chauvin, President and CEO, and Mr. Robin Seibert, our CFO.

Robin Seibert

Thank you, Deborah. I'd like to review Gulf Island's press release issued for the second quarter of 2008. The press release consists of two pages. Page one is text and page two is an income statement. I'd like to review page two first. The following are the results of operations for the three months ended June 30, 2008 compared to the three months ended June 30, 2007.

Revenue was $117.9 million compared to $137.6 million. The cost of revenue was $97.9 million compared to $123.4 million. Gross margin was $20.1 million or 17% of revenue, compared to $14.1 million or 10.3% of revenue. As mentioned last quarter, certain projects include costs for additions or improvements to our infrastructure that are necessary to fabricate or complete a project. So these additions or improvements provide future benefit to us. The cost to build these projects is capitalized. Thus cost removed from project cost is subsequently capitalized directly increases our estimated profit on the project. The amounts included in the project revenue that were capitalized are $2 million compared to $2.3 million. The amounts included in project revenue mentioned above that were capitalized are net of depreciation expense.

General and administrative expenses were $2.6 million, or 2.2% of revenue, compared to $2.8 million or 2% of revenue. Operating income was $17.5 million compared to $11.3 million. Net interest income was $29,000 compared to $153,000. During the quarter the interest rates were down considerably. Other income/expense were gain of $5,000 and a loss of $1,000, respectively. Activity for both periods was for the sale of miscellaneous equipment.

Income before taxes was $17.5 million compared to $11.5 million. Income tax expense was $5.7 million compared to $3.6 million. The income tax rates were 32.3% compared to 31.6%. The change in tax rates were related to post-2005 hurricane employment hiring credits available to the company that were phased out in the third and fourth quarters of 2007. Finally we expect tax rate to be 33% to 34% for the remainder of the year.

Net income was $11.9 million compared to $7.9 million. Basic earnings per share were $0.83 compared to $0.56. Diluted earnings per share were $0.83 compared to $0.55. The weighted average shares outstanding were 14.3 million compared to 14.2 million. Adjusted weighted average shares outstanding were 14.3 million compared to 14.3 million.

Depreciation expense was $4.3 million compared to depreciation and amortization expense of $3.5 million. We declared and paid cash dividends of $0.10 a share for both quarters ended June 30, 2008 and 2007.

The following are the results of operations for the six months ended June 30, 2008 compared to June 30 of 2007. Revenue was $241.7 million compared to $246.9 million. The cost of revenue was $198.4 million compared to $224.3 million. Gross margin was $43.3 million or 17.9% of revenue compared to $22.7 million or 9.2% of revenue. Capitalized costs net of depreciation included in project revenue was $4.6 million compared to $2.8 million.

General and administrative expenses were $5.3 million or 2.2% of revenue compared to $5.1 million or 2.1% of revenue. Operating income was $38.0 million compared to $17.5 million. Net interest income was $132,000 compared to $261,000, again interest rates were lower. Other income expense were losses of 55,000 and 5,000 respectively. Losses for both periods were for the sale of miscellaneous equipment.

Income before taxes was $38.1 million compared to $17.8 million. Income tax expense was $12.8 million compared to $5.5 million. The income tax rates were 33.5% compared to 31.0%. Net income was $25.3 million compared to $12.3 million. Basic earnings per share were $1.78 compared to $0.87. Diluted per share were $1.77 compared to $0.86. Weighted average shares outstanding were 14.2 million shares compared to 14.1 million shares. Adjusted weighted average shares outstanding were 14.3 million shares compared to 14.3 million shares.

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