Deep Down’s 2013 results below expectations
- Business & Finance
Deep Down, Inc., an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services, has reported financial results for the full fiscal year 2013.
For 2013, Deep Down reported a net loss of $0.6 million, or $0.05 loss per diluted share, compared to a net loss of $2.5 million, or $0.24 loss per diluted share, in 2012.
Revenues for 2013 were $29.6 million as compared to revenues of $29.0 million in 2012. The $0.6 million increase was due primarily to an increase of $1.9 million in the subsea solutions services due to continued strong demand for the company’s technologically innovative solutions, offset by a decrease of $1.3 million in ROV and topside equipment rental services due to decreased demand.
“Gross profit for 2013 was $8.7 million, or 29 percent of revenues, as compared to gross profit for 2012 of $9.3 million, or 32 percent of revenues. The $0.6 million, or 3 percentage-point decrease in gross profit in 2013 compared to 2012, was due to a $1.5 million decrease related to our subsea solutions services, offset by a $0.9 million improvement in our ROV and topside equipment rental services. This improvement was attributable to the consolidation of our Morgan City, Louisiana operations into our Channelview, Texas operations in August 2012, significantly reducing our costs there.”
The reduced margins in the company’s subsea solutions services were driven by a $1.4 million write-down on a negotiated buyback of a fabricated asset, resulting from a significant change in a customer’s business needs. Our margins were further reduced by lower than expected margins on a fixed-price fabrication project, and increased rent associated with our new manufacturing facility. Selling, general and administrative expenses for 2013 was $8.8 million, or 30 percent of revenues. SG&A for 2012 was $8.9 million, or 30 percent of revenues. The $0.1 million decrease was due to $1.4 million in savings realized from the previously mentioned consolidation of our businesses, partially offset by increases in payroll and related costs, property tax, and professional and insurance fees from our expansion efforts,” said the company in a statement.
The Company’s management evaluates its financial performance based on a non-GAAP measure, Modified EBITDA, which consists of earnings (net income or loss) available to common shareholders before net interest expense, income taxes, depreciation and amortization, and other non-cash and non-recurring charges. The Company’s management evaluates its financial performance based on a non-GAAP measure, Modified EBITDA, which consists of earnings (net income or loss) available to common shareholders before net interest expense, income taxes, depreciation and amortization, and other non-cash and non-recurring charges. Modified EBITDA was $3.5 million in 2013 vs. $2.4 million in 2012. The $1.1 million increase in Modified EBITDA in 2013 compared to 2012 was due to a $2.2 million increase in gross profit before estimated revenue reduction due to the buy-back of a fabricated asset, non-recurring operational consolidation expense and depreciation, offset by an increase of $0.9 million in SG&A before share-based compensation, bad-debt provision, and non-recurring operational consolidation expense, and a decrease of $0.2 million in other income before technology investment expense.
LIQUIDITY / CAPITAL RESOURCES
“At December 31, 2013, we had working capital of $11.9 million, including cash and cash equivalents of $5.3 million. On March 5, 2013, we entered into the fifth amendment of our bank credit agreement, which among other things, increased the committed amount under our revolving credit facility to $5 million from $2 million. In the third quarter of 2013, in a private placement, we issued 4.4 million shares of our common stock raising net cash proceeds of $7.6 million. Because of these factors, and because of cash we expect to generate from operations, we believe that we will have adequate liquidity to meet our future operating requirements,” the company said in their report.
Ronald E. Smith, Chief Executive Officer, said: “The financial results for 2013 were below our expectations; however, we made tremendous progress toward positioning our company for the long term. First, we greatly expanded our capacity by leasing our new fabrication facility in Houston. Second, we had a capital infusion of $7.6 million in cash as a result of the third quarter 2013 private placement of our common stock. Lastly, our backlog of $29 million is the highest level in our Company’s history and were it not for the two fabrication projects that resulted in lower margins than we anticipated, 2013 could have been a record year for Deep Down. We are bidding on the largest orders in our Company’s history and are more optimistic than ever about the future success of the Company.”