Deep Down Sinks on Delays

Deep Down, Inc., an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services, today reported financial results for the quarter ended June 30, 2014.

For the second quarter of 2014, Deep Down reported a net loss of $1.2 million, or $0.08 loss per diluted share, compared to net income of $1.0 million, or $0.10 income per diluted share, for the second quarter of 2013.

Revenues for the second quarter of 2014 and 2013 were $5.8 million and $9.2 million, respectively. The $3.4 million decrease (37 percent) is the result of the 2013 period being unusually high. Additionally, projects valued in excess of $17.0 million were delayed during the second quarter of 2014, resulting in lower revenues of approximately $7.0 million.

Gross profit as a percentage of revenues for the second quarter of 2014 and 2013 was 29 percent and 38 percent, respectively. The nine percentage point decrease in gross profit was due primarily to the delay of several lump sum projects just discussed. The delay of these projects negatively impacted the gross margin by approximately $2.6 million.

Selling, general and administrative expenses (“SG&A”) for the second quarter of 2014 was $2.8 million, or 48 percent of revenues. SG&A for the second quarter of 2013 was $2.4 million, or 26 percent of revenues. The $0.4 million increase in SG&A is due primarily to quality, project management, engineering, shop improvements related to safety systems, increased security costs and an increase in bad debt expense.

A significant portion of the increase was due to the impact of the decision to delay a Latin America regional operation in Panama, which included a $0.2 million accrual of all related costs, and an increase in security costs at the new facility of $0.1 million.

Ronald E. Smith, Chief Executive Officer, stated, “Although our second quarter results were not what we had hoped, there is more to the story than meets the eye. The disappointing revenue and gross profit figures were caused primarily by customer requested delays in several of our large fixed-price contracts. Had these delays not occurred and we had met our contract delivery dates, we would have added approximately $7.0 million to revenue and approximately $2.6 million to gross profit in the quarter. We are hopeful that as these delays abate, the effect of completing these projects for our customers will have a positive effect on the third and fourth quarters of 2014.

“Our balance sheet remains strong, and we continue to replenish our backlog, which is currently at approximately $28.5 million as of July 31, 2014. We are fully operational at our new facility and sufficiently staffed with the right people. Relations with our customers has never been better, and we are poised to generate excellent financial results for the remainder of 2014.”

Press Release, August 15, 2014