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Global Industries, Ltd. (NASDAQ:GLBL)

Q4 2009 Earnings Call Transcript

February 25, 2010 10:00 am ET

Executives

Peter Atkinson – President

John Clerico – Chairman and CEO

Trudy McConnaughhay – VP and Controller

Analysts

James West – Barclays

Marshall Adkins – Raymond James

Joe Gibney – Capital One

Graham Mattison – Lazard Capital Markets

Brad Handler – Credit Suisse

Operator

Welcome to Global Industries' fourth quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions) Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

On the call this morning are John Clerico, Chairman and Chief Executive Officer; Peter Atkinson, President; and Trudy McConnaughhay, Vice President and Controller.

I would now like to turn the meeting over to Mr. Peter Atkinson. Sir, please begin.

Peter Atkinson

Good morning, everyone. As in previous calls, I would like to welcome you to our earnings conference call for the fourth quarter of 2009, and remind you the call is being recorded and will be available on our website. The primary objective of this conference call is to discuss the earnings for the quarter ended December 31st, 2009.

Certain of our comments and responses to questions may include forward-looking-statements. These forward-looking statements reflect our current views and assumptions and are subject to a number of uncertainties, which are discussed in detail in our Form 10-K filing with the SEC.

Now, I’ll turn the call over to our Chairman and Chief Executive Officer, Mr. John Clerico. Mr. Clerico?

John Clerico

Thank you, Peter, and good morning everyone. Welcome to our fourth quarter conference call. As we've done in the past, I'll provide a summary overview of the quarter and turn it over to Trudy, who will provide some financial comments. Peter will then provide operational comments, and as we said, we will finish by taking your questions.

Before discussing our results, I want to announce that our Board of Directors has appointed Mr. John B. Reed, Jr. as our new Chief Executive Officer effective March the 2nd. John is the former Chief Executive of Heerema Marine Contractors and brings a wealth of industry knowledge and experience to Global. John is well known in the industry and by many of our customers. And we are truly pleased to have him take the reins of leadership at Global. I will remain as Chairman of the Board and look forward to working with John to ensure a smooth transition.

Now to our results, obviously the fourth quarter was another very challenging quarter for us. Due to the low level of project activity, we experienced our second major sequential decline in revenues. Our revenues declined this quarter by 28%. As I said in the press release, our fourth quarter results were affected by the normal winter seasonal decline and offshore activities in the Gulf of Mexico, as well as continued delays and postponement of new offshore oil and gas projects.

Despite the fact that we made considerable reductions in SG&A expenses, stacked a number of idle vessels, and imposed seasonal layoffs of people, we still incurred a loss of $5.3 million or $0.05 per share for the fourth quarter of 2009. Our project order backlog at year-end was at the very low level of $103.8 million, due both to the industry-wide slowdown and delays on a number of projects, which affected us specifically. We were, however, successful in booking an additional $91.4 million of work during the month of January 2010.

All of our business teams at Global are focusing on business development activities and aggressively pursuing available project opportunities around the world in order to rebuild our backlog. As you know, our recovery plan at Global, which we implemented last year has focused on improving our project execution, reducing our costs, and carefully managing our cash.

I'm pleased to report that we executed well on our key projects in the Gulf of Mexico, Asia-Pacific, and Latin America. We finished the year with $345 million in cash as the result of strong efforts to collect accounts receivable and to control both capital and expense spending. Our SG&A expenses were down to $13.5 million in the fourth quarter, a reduction of 38% from last year's expenses. As before, we plan to continue to actively manage this area.

As we look forward into 2010, the environment will remain challenging and our organization is focused on building business and maximizing our performance. We intend to do this by actively marketing our services to our customers, investing in our two new-built vessels, developing cost-effective project solutions, and executing our projects safely and efficiently.

Before I turn the call over to Trudy for financial comments, I also want to acknowledge the efforts of our people in successfully concluding the government and company investigation into our activities in West Africa without further cost to the company or enforcement action against the company. We are pleased with this result and obviously remain committed to conducting our operations in an ethical fashion and in full compliance with all applicable laws.

Now, I'll turn the call over to Trudy McConnaughhay for financial comments. Trudy?

Trudy McConnaughhay

Thank you, Mr. Clerico, and good morning everyone. For the fourth quarter 2009, consolidated revenues were $146.3 million compared to $250.4 million for the same quarter last year. Gross profit was $8.6 million in the fourth quarter of 2009 compared to $13.1 million in the same quarter last year. Net loss was $5.3 million or $0.05 per diluted share for the fourth quarter of 2009 compared to a net loss of $28.1 million or $0.25 per diluted share in the fourth quarter of 2008.

The 41.6% decline in revenue between comparable quarters was primarily driven by lower activity in all our business segments, except North America Subsea. We have continued to reduce our spending for selling, general, and administrative expenses, primarily due to company-wide cost control activity, reduced professional fees, and management compensation.

In the fourth quarter of 2009, we spent $13.5 million for selling, general, and administrative expenses compared to $21.9 million spent in the same quarter of 2008. For 2009, our selling, general, and administrative expenses were $69.2 million, $26.2 million less than the $95.4 million spent in 2008. Interest income of $400,000 for the quarter of 2009 decreased by $1.4 million over the same quarter last year, primarily due to significantly lower interest rate.

During the fourth quarter of 2009, we booked $101.4 million of new work, resulting in a backlog of $103.8 million as of December 31st, 2009. This booked work is distributed among our reportable segments as follows. Latin America, $43 million; Asia Pacific /India, $38 million; Middle East, $2 million; North America, $21 million. In January, we booked an additional $91 million of new work, primarily in Malaysia.

Turning to cash flows for the year, net cash provided by operations in 2009 was $62.9 million compared to $119.2 million used in the same period last year. This increase in operating cash provided primarily reflects higher net income and reduced dry-docking costs. Investing activities used $1.2 million net cash during 2009 compared to $297.3 million used for 2008. Cash was provided by asset sales of $26.9 million and a decrease in our restricted cash performance of $93.4 million due to the ending of our interim cash collateralization period under our revolving credit facility.

Capital expenditures of $122 million were primarily for the construction of two new derrick/pipelay vessels, the Global 1200 and Global 1201and two new saturation dive systems. Cash used in 2008 was primarily for additions to our restricted cash requirements under our revolving credit facility and capital expenses for the acquisition of a deepwater subsea construction vessel and ongoing expenditures for the construction of the Global 1200 and Global 1201.

Net cash use by financing activities was $12.5 million for 2009 compared to $19.3 million used for 2008. Use of cash in 2009 primarily results from payments on long-term debt. Net cash used in 2008 was primarily for the repurchase of common stock under our repurchase agreement announced in August of that year. In summary, net cash inflows were $57.3 million in 2009, resulting in a year-end unrestricted cash balance of $344.9 million.

With that, I'll turn the conference over to Peter Atkinson. Thank you.

Peter Atkinson

Thank you, Trudy, and good morning everyone again. As in the past, I'll provide a few regional operational highlights for the quarter ended December 31st, 2009. Loss before taxes in our West African segment was $2.7 million for the fourth quarter of 2009 compared to $14.1 million for the fourth quarter of 2008.

Revenues decreased $8.9 million to $3.3 million. During the quarter, we recognized revenue for cost reimbursements and claims associated with prior activity on two projects. The segment also benefitted this quarter and year from the relocation of the Hercules and Sea Constructor to U.S. Gulf of Mexico in January 2009. We are continuing our marketing efforts in West Africa, but our DLB Cheyenne is currently stacked in Tema Ghana.

Revenues in our Middle East segment declined $43.2 million to $6.2 million for the fourth quarter of 2009. Loss before taxes was $7 million for the fourth quarter of 2009 compared to $1.9 million for the fourth quarter of 2008. The segment was affected by significantly lower activity in the region. During the fourth quarter of 2009, the segment benefitted from $2 million of cost savings on continued settlement of change orders and claims on the Berri-Qatif project in Saudi Arabia.

Fourth quarter revenues in our Latin America segment decreased $38 million to $43.7 million, reflecting lower activity in both Brazil and Mexico. Loss before taxes was $3.6 million for the fourth quarter of 2009 compared to income before taxes of $2.9 million for the fourth quarter of 2008.

During the 2009 fourth quarter, we finalized all change orders and claims on the Camarupim project in Brazil and commenced work on a six-month diving support project for Petrobras. In Mexico, the DLB Iroquois is mobilized for the Ixtal (inaudible) pipeline projects, which we expect to be completed in March and April of this year.

Revenues in our Asia Pacific/India decreased $13.5 million to $37.6 million in the fourth quarter of 2009. Income before taxes decreased $4.4 million to $7 million. During December, the Comanche completed work in Thailand installing platforms and pipelines as part of Chevron’s 2009 offshore program. The DLB 264 completed a short charter in Malaysia, installed PCPP in Malaysia's d-30 wellhead platform and topsides and is currently building [ph] up to mobilize for PETRONAS' 2010 work program in Malaysia.

Revenues in our North American subsea segment increased $3.8 million to $46.8 million in the fourth quarter of 2009. Income before taxes also increased $4.5 million to $8.9 million. Additional revenue from increased activity for the Olympic Challenger and Normand Commander was partially offset by the loss of revenues generated by the Sea Lion and a third-party vessel in the fourth quarter of 2008. During the fourth quarter of 2009, we collected insurance proceeds of $1.2 million, reimbursing us for the salvage expenses associated with the recovery of the Sea Lion, which grounded in an instant in November 2008.

Revenues in our North America offshore construction segment were $15.8 million in the fourth quarter of 2009 compared to $22.7 million in the fourth quarter of 2008. Loss before taxes was $6.3 million in the fourth quarter of 2009 compared to $3.1 million in the same quarter in 2008. These declines were principally attributable to slowing project activity in the U.S. Gulf of Mexico.

That concludes our prepared comments and we will now take your questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from James West with Barclays. Your line is open.

James West – Barclays

Hey, good morning, guys.

John Clerico

Good morning.

James West – Barclays

John or Peter, when we think about the backlog where it sits now, I think last quarter you had talked about improved bidding activity, particularly in Southeast Asia and perhaps the Middle East as well. Is the reason that the backlog is still declining because these bids haven't turned into actual contracts or is it that your competitors are still undercutting you on pricing and you are just not willing to go down to lower levels of pricing?

John Clerico

It's the first factor, Jim. We can tick off the projects for you, but all of those that we have bid on recently are still under deliberation by our customer. One or two of them have been delayed a little bit as we indicated. But we think we have made strong proposals in all of the projects that we've bid, but there has been no award announced yet. Peter, if you want to perhaps expand on that?

Peter Atkinson

I can confirm that, Jim. We are still seeing projects that are moving to the right. We are still seeing clients that coming out of (inaudible) segment and looking for better pricing and they are delaying those projects.

James West – Barclays

And what would you say the average size is of some of these – the bigger projects?

Peter Atkinson

They were – the ones that we are bidding on are ranging from $50 million to $250 million.

James West – Barclays

Okay. Any of these projects that would likely now be awarded within the second – the first half of this year?

Peter Atkinson

If we can believe what the clients are telling us, that's what their intention is.

James West – Barclays

Okay, fair enough. And then with the Global 1200 being delivered later this year, at what point do you need to sign a contract for that vessel? Where would you intend – envision a sign of contract?

Peter Atkinson

The sooner the better, obviously and we are actively pursuing several projects with the – with that particular vessel. We have submitted alternative proposals on several projects where we would use either one of our existing vessels or the new vessel.

James West – Barclays

And will these projects that you are targeting, will they require any additional changes to the 1200?

John Clerico

I don't believe so, Jim. It's – we are working very hard on putting together a program for the 1200, meaning a series of projects starting with the first one, which will be a good operational test run for the vessel and then some follow-on projects. So that's one of our primary competitive aims as we move into the latter part of 2010. Those have not yet been awarded, but that's – that has been our strategy and our plan.

James West – Barclays

Okay. And then last question from me. John, now that you've named a new CEO, when will – when should we expect you to name or are you moving forward on a new CFO?

John Clerico

Very – very shortly. It's hard for me to say exactly when, but I would say within 30 days.

James West – Barclays

Okay. Great to hear. Thanks, guys.

Operator

Thank you. Marshall Adkins with Raymond James, your line is open.

Marshall Adkins – Raymond James

Good morning. I'm going on to stay on the order book or backlog. You did say you booked $100 million of business in January. Is that correct?

John Clerico

That's correct.

Marshall Adkins – Raymond James

All right. So should we view the fourth quarter kind of as the bottom for backlog? Is that – am I reading too much into that?

John Clerico

It's – I'm not going to be unequivocal on it, because it's still a little bit of a forecast, but I think that will be the case.

Marshall Adkins – Raymond James

Okay. And the size of the order book, I know it's a nebulous kind of concept, but has that been getting bigger or smaller over the last, say, quarter or so?

John Clerico

By order book you mean?

Marshall Adkins – Raymond James

The bids outstanding.

John Clerico

Bids being processed?

Marshall Adkins – Raymond James

Right, right.

John Clerico

It’s declined, I would say, fairly steadily over the last year. You may recall, I don't know, 12, 18 months ago, us talking about $4 billion plus bids in-house. It’s, I would say, today, roughly half of that.

Marshall Adkins – Raymond James

Okay. But it sounds like we are still talking about second half of '10 is when your earnings pick up. Was this – was Q4 also the bottom for earnings?

John Clerico

I'm not prepared to say that and I can't say that, Marshall. All I can tell you is what I said in my comments. We are working very hard with all of the costs and operational lever as we can to cope with lower revenues, but there is no doubt that conditions are going to continue to be very challenging in the first couple of quarters of 2010.

Marshall Adkins – Raymond James

Okay. Last one from me. It may take a while, but Pete, you went through the regional results. Can you give us an update on the regional outlook, the North America side constructions that was fairly weak, Middle East was weak, it looked like Latin America margins were improving as we thought and in the subsea business and probably – is that – are those trends we should expect to continue or just give us some flavor on what you are seeing regionally going forward.

Peter Atkinson

Well, I think we've been pretty clear that the activity for the fourth and first quarters in the Gulf of Mexico will be seasonally very slow and historically, that's the norm. What we have demonstrated in the fourth quarter is that our margins on our subsea activity have held up pretty well within the clients. But on our OCD division, activity and margins are getting a lot tighter, a lot slimmer and it's getting very, very competitive.

We are starting to see a little uptick in seasonal activity as we get into the second quarter in the Gulf of Mexico and there are a few small pipeline bids that come out or some salvage projects that are starting to come out that we don't expect it to increase significantly.

In Mexico, we are starting to see some indications now that the changes in the Pemex administration have kind of settled down that there will be some tenders coming out for pipeline projects, probably in end of March or it will be April, that could be installed by the end of 2010. So we are a little optimistic about the pickup of work there in Mexico.

Brazil – there continues to be several projects that will be tendered offshore Brazil. The – one of the projects we've been chasing for some time that has been delayed almost six months now is supposed to – well, we've – we tendered it twice. We never know whether they will award it or they won't award it, but there are projects there that will be developed and bid. The outlook for 2011-2012 continues to be very, very strong in that region.

Middle – West Africa, there are a couple of projects we chase in there, but the activities for those is pretty minimal. We are all marketing our services down there, but we don't have any definite prospects in the short term. Middle East, we are starting to see some activity again for 2011 and 2012, very few short-term opportunities in Middle East.

Asia-Pacific is very active. That is where the majority of our bids and tenders are occurring and we are seeing that throughout the Asia-Pacific region and the short-term opportunities are probably best in Asia than any of our other regions.

Marshall Adkins – Raymond James

Great. That's an excellent overview. Thanks.

Operator

Thank you. Joe Gibney with Capital One, your line is open.

Joe Gibney – Capital One

Thanks. Good morning, John and Peter.

John Clerico

Good morning, Joe.

Joe Gibney – Capital One

Just want to follow up a little bit. Peter, if you could, just on the vessel side, you referenced in the release the stacking of some idle vessels, so you are obviously very focused on cost control. Which vessels in particular got stacked incrementally quarter-over-quarter looking at 4Q versus 3Q and what regions? Just curious if most of that Gulf of Mexico, given the slowness in the construction side.

Peter Atkinson

Mostly, areas of the Gulf of Mexico. Most of it is seasonal related with our OCD vessels. As we've said specifically, we have the Cheyenne inspecting team at Ghana. We have the Shawnee, which was assigned to our Latin American division currently stacked. The DP2 is idle in the Middle East and – those are the main vessels that are currently stacked. The second one is stacked in Batam.

Joe Gibney – Capital One

Okay. And just on the G&A run rate and given the emphasis on cost control, is this – this $13.5 million level reasonable going forward or can we read the year – you are cutting cost a little bit more here given the softness?

John Clerico

I think the fourth quarter result is probably going to be somewhat higher as we – will go up somewhat as we move into 2010's financial results. We had a couple of one-time things occurring in the fourth quarter that won't be sustained, but be assured that that continues to be aggressively managed and that we'll continue to show sizeable year-over-year reductions in that category of costs.

Joe Gibney – Capital One

Okay, that's helpful. And just on the G1200 program that you referenced and certainly trying to work out it probably in smaller proving out jobs, is that initial program all U.S. Gulf of Mexico focused? Is that how we should view that vessel for at least its first year of operation?

Peter Atkinson

No. Our intention is to have a project very close to the shipyard in the region in Asia-Pacific. We – rather than mobilizing it all the way back to the Gulf of Mexico, we are targeting projects in Thailand and in Asia-Pacific region, somewhere close to the shipyard where we can go and prove it and sea trial it.

Joe Gibney – Capital One

Okay, that's helpful. And then just one last one. Peter, you referenced in the Middle East sort of a – the larger bid package that seem to be shaping up is '11 and '12 revenue opportunities. Is that a little – slightly different from where we were last quarter? Is that work pushed out a little bit more, seem to be the potential for some larger packages there in the Middle East in the back-half of this year that just continue to slip a little bit given the push-out and customer resonance. Is that fair?

Peter Atkinson

Some of it is push-out, some of it is the new prospects that have actually got to the ITT stage for projects, but they are not going to happen in 2010 for us.

Joe Gibney – Capital One

Okay, that's helpful. Thank you, guys. I'll turn it back.

Operator

Thank you. (Operator Instructions) Our next question comes from Graham Mattison with Lazard Capital Markets. Your line is open.

Graham Mattison – Lazard Capital Markets

Hi, good morning, guys.

John Clerico

Good morning, Graham.

Graham Mattison – Lazard Capital Markets

Just wanted to follow up on the Middle East comments. I mean, you are saying it's pretty limited in terms of the near-term outlook. But if you also give an update on your relationship with Fluor and how that's developing?

John Clerico

Yes. Our relationship with Fluor continues to be very – very strong and very good and we continue to work together on a number of customer project proposals. We have one current fairly large bid outstanding in the Middle East with them that we should hear something about within the next few weeks. But the relationship is good and we think we've made a strong competitive proposal in that particular case and we continue to look elsewhere besides of the Middle East with Fluor. We've yet to win our first project together, but we are working well together.

Graham Mattison – Lazard Capital Markets

But – so if this project come in the next two weeks, I mean, that would be a potential 2011 revenue opportunity?

John Clerico

Yes.

Graham Mattison – Lazard Capital Markets

Got you. And then I was just wondering if you could give an update on the CapEx outlook for the 1200 and 1201.

John Clerico

Let's let – let's let Trudy do that for you.

Graham Mattison – Lazard Capital Markets

Great. Thank you.

Trudy McConnaughhay

We have 300 – about $315 million left to go on those two vessels; $233 million for the 2010 outflows on those.

Graham Mattison – Lazard Capital Markets

Great. Thank you very much. Very helpful. And one just other question, just a clarification. In the North Sea subsea margins, the gain on the Sea Lion, was that included in the operating profit for that division?

Peter Atkinson

Yes.

Graham Mattison – Lazard Capital Markets

Got it. All right, great. Very helpful. I'll jump back in queue. Thank you.

Operator

Thank you. Brad Handler with Credit Suisse, your line is open.

Brad Handler – Credit Suisse

Thanks. Good morning.

John Clerico

Good morning.

Brad Handler – Credit Suisse

I guess I'm hoping you can tell me that you've seen enough bids come to closure, one that perhaps you – a couple that you won here in January and then some that perhaps you lost to give a sense of pricing developments in the last couple of months or so?

John Clerico

Well, as we've said before, to win – to win a project bid today, you have to be low cost, you have to have a good efficient solution for the customer. Every single project is heavily competed for. I haven't listened to a bid review in the last few months where there weren’t at least four to six competitors on every project. We are finding though that we think our solutions are attractive to customers, we think we can be competitive enough to win our share of projects.

The environment is difficult, you have to be prepared to aggressively sharpen your pencil and look at cost. Not just cost, but the whole operational approach to come up with a good solution for the customer. Difficult environment, but we are satisfied we can be competitive in this environment.

Brad Handler – Credit Suisse

Understood. Is it – I recognize that every project is different and so trying to gauge kind of pricing levels can be very difficult, but is it – is it possible at all and can you comment on kind of where pricing has gone in – recently?

John Clerico

Well, I can tell you that margins are tight for everyone bidding on every single project. I can't think of one in which we have made a bid where we didn’t have a good operational approach, in other words, where another competitor – bidder had a – had a – had an advantage because of the vessel or an operational approach. But even so, margins are tight, especially I would say on mobilization, demobilization costs that go into a bid.

Brad Handler – Credit Suisse

Fair enough. Okay. Unrelated follow-up, please. Can you – you made some comment about some of the work coming back in the Gulf of Mexico. I guess I'm just curious what's your sense of hurricane – specific sort of hurricane repair related work for 2010? Is there a good amount that remains that's under the right circumstances would be addressed, you think, this year?

John Clerico

I'm not aware of any – it's been a significant amount of time since we've had major hurricane damage in the Gulf. I'm not aware of any backlog of – any major backlog of repair work that needs to be undertaken.

Brad Handler – Credit Suisse

Okay.

Peter Atkinson

There are a few structures out there that is still down, but they've taken the time, taken them out. Most of the salvages that we are seeing at the moment are planned salvage programs rather than specifically hurricane-related programs.

Brad Handler – Credit Suisse

Okay, got it. Thanks, guys. That's it for me.

Operator

Thank you. And at this time, I'm showing no further questions.

John Clerico

All right. Thank you, everybody. We are available for individual discussion with anyone, so feel free to call us. Peter, you have anything you want to add in closing?

Peter Atkinson

No. Just like to thank everybody for joining the call today. And with that, it concludes our call. Thank you, everyone.

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