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Layne Christensen Company F1Q11 (Qtr End 04/30/2010) Earnings Call Transcript

Layne Christensen Company F1Q11 (Qtr End 04/30/2010) Earnings Call Transcript

Layne Christensen Company (LAYN)

F1Q11 Earnings Call

June 2, 2010 11:00 am ET


Andrew Schmitt – President & CEO

Jerry Fanska – SVP Finance


Richard Paget - Morgan Joseph & Co.

Jonathan Ellis – B of A/Merrill Lynch

Dick Kendig – Keeley Asset Management

John Rogers - D. A. Davidson & Co.

Steve Ferazani – Sidoti & Company




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Welcome to the Layne Christensen fiscal 2011 first quarter earnings call. (Operator Instructions) With that I will turn the conference now to Mr. Andrew Schmitt. Please go ahead, Sir.

Andrew Schmitt

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Thank you. Good morning and welcome. I am 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, 2010.

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 Andrew, good morning everyone. Revenues for the first quarter increased $26.5 million or 13% to $230.7 million from $204.2 million in the prior year. Water infrastructure revenues increased $4.8 million or 2.9% for the quarter to $172.9 million. In the water infrastructure division during the quarter revenues from previously acquired operations increased $14.4 million. Specialty drilling, a large piece of which was work in Afghanistan increased by $12.2 million and GeoConstruction revenues increased $4.2 million. These increases were offset by reduced revenues of $16.8 million from a large utility contract in Colorado that was substantially completed last year.

We have also experienced continued weakness in our municipal water supply markets and in the housing sector. Mineral exploration revenues increased 85% to $45.9 million with increased activity across most regions, the largest of which were West Africa and Mexico. Layne Energy revenues decreased 7.5% to $9.5 million attributable to the exploration of favorably priced forward sales contracts and to the current lower natural gas prices.

Cost of revenues increased $12 million to $171.9 million or 74.5% of revenues for the three months ended April 30, 2010 compared to $159.9 million or 78.3% of revenues for the same period last year. The decrease as a percentage of revenues was primarily focused in the water infrastructure division as a result of higher profit margins on the GeoConstruction and specialty drilling work and to a lesser extent decreased activity in mineral exploration.

Selling, general and administrative expenses increased to $33.5 million in the quarter from $31.7 million in the prior year primarily the result of increased incentive compensation related expenses of $2.9 million as a result of higher earnings and $1.4 million in expenses from acquired operations offset by $1.9 million due to a reassessment last year of the recoverability of value added tax balances in certain foreign jurisdictions and accrual for certain other taxes.

Depreciation, depletion and amortization decreased in the quarter to $14.1 million from $14.3 million primarily due to the lower depletion rates in the energy division resulting from updated estimates of economically recoverable gas reserves. During last year’s first quarter the company received litigation settlements valued at $3.2 million. The settlements included receipt of land and buildings valued at $2.8 million and cash receipts of $333,000. There were no litigation gains in the three months ending April 30


this year.

Our equity earnings affiliates in Latin America was relatively flat this quarter over last year. Interest expense decreased $284,000 to $526,000 for the quarter as a result of our scheduled debt reductions. The income tax rate for the quarter was 47% compared to 48% last year. The decrease is primarily attributable to the impact of the nondeductible expenses as pre-tax income increased this year. The net result for the quarter was $0.34 per share in earnings compared to $0.05 last year.

The company’s balance sheet at April 30, 2010 reflects total assets of $740.5 million, stockholder’s equity of $475.1 million, total long-term debt of $6.7 million excluding current maturities of $20 million and cash and cash equivalents of $67.9 million. The company used $3.5 million in cash from operating activities in the quarter. Investing activities totaled $12.3 million net of proceeds from equipment sales. The investing activities included $387,000 in unconventional gas expenditures with the remainder primarily for property, plant and equipment additions to the other divisions.

With that I will turn it back over to Andy to talk about the operations.

Andrew Schmitt

Thanks Jerry. From an operating standpoint in our water infrastructure segment the Layne legacy water well drilling business in the U.S. domestic market, as Jerry said, remains very weak. If we pull the Afghanistan job out of their quarterly numbers revenue would be down 12% from a year ago and the remaining U.S. business only marginally profitable. Essentially a two-rig operation running around the clock in a war zone is the reason Layne Legacy was profitable in this first quarter.

Without question this is the patriotic thing to do on this job and we are extremely proud of our employees, all who volunteered for the project. They are also doing one heck of a job in executing this work which looks like it will continue for at least the balance of the year. The military is pleased with our work and the forward-operating bases we are supplying will have the best potable ground water, I can assure you, ever produced in that country.

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