Deep Down Reports Second Quarter 2010 Results and Update on Cuming Acquisition
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- Revenues increase 55 percent to $9.6 million
- Gross profit increases 93 percent to $3.6 million
- EBITDA turns positive to $724 thousand
HOUSTON, Aug. 16 /PRNewswire-FirstCall/ -- Deep Down, Inc. (OTC Bulletin Board:DPDW.ob) ("Deep Down" or the "Company"), an oilfield services company specializing in products and services for the deepwater and ultra-deepwater oil and gas industry, today announced results for the second quarter of 2010. For the second quarter of 2010, Deep Down reported a net loss of $452 thousand, or $0.00 loss per share on revenues of $9.6 million compared to a loss of $1.8 million, or $0.01 loss per share on revenues of $6.2 million during the same quarter last year.
OPERATING RESULTS
Revenues increased by $3.4 million, or 55 percent to $9.6 million for the second quarter 2010 from $6.2 million for the same quarter last year. The increase was due primarily to increased revenues from the production of products for deepwater projects and ROV and other related services. During the second quarter 2010, the Company's flotation plant ran at over 30 percentage points greater capacity for the production of buoyancy products compared to the same quarter last year. The higher demand for our ROV and other related services in the second quarter 2010 resulted primarily from customers commencing work that had previously been delayed, projects supporting relief efforts and work related to the increased emphasis on inspection and safety as a result of the oil spill in the U.S. Gulf of Mexico ("GOM").
Gross profit increased $1.7 million to $3.6 million for the second quarter 2010, an increase of 93 percent over the same period of the prior year, reflecting an overall increase in the gross profit margin from 30 percent to 37 percent. The increase in gross profit and gross profit margin was due to the increased revenues described above and to the revenue mix which included higher margin ROV services and engineered subsea projects than during the same period last year.
When comparing the second quarter of 2010 to the second quarter of 2009, the operating loss was reduced by $2.1 million to a loss of $339 thousand primarily as a result of improved gross margin and a decrease in selling, general and administrative expenses ("SG&A") of 9.8 percent as the Company continued to focus on more efficient operations.
EBITDA (please see definition in last paragraph below) for the second quarter of 2010 was $724 thousand compared to negative $1.6 million for the same period last year. This improvement was primarily driven by the increase in gross profit and lower SG&A.
"There will undoubtedly be greater regulatory scrutiny and higher costs associated with finding and developing hydrocarbon reserves in deep water, particularly in the GOM. Additionally, we believe that the international markets will be more important to our operations going forward as we continue our focus on Brazil and West Africa deepwater projects. The deepwater market remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates. We are well positioned to supply services and products required to support safe offshore and deepwater projects of our customers. Therefore, we anticipate demand for our deepwater services and products will continue to grow and we will continue to focus on this sector of the industry worldwide," stated Ronald E. Smith, Chief Executive Officer.
ACQUISITION
On May 3, 2010, the Company announced entry into a conditional purchase agreement ("Purchase Agreement") to acquire Cuming Corporation (or "Cuming"). Privately-held Cuming Corporation was founded in 1980 and is a leading manufacturer of buoyancy and insulation products with a wide range of deepwater oil and gas industry applications. Cuming's operations are highly complementary with those of Deep Down's Flotation Technologies subsidiary, which produces syntactic foam products for customers in the oil and gas, defense, scientific and industrial sectors. At the closing of the transaction, Deep Down expects to acquire 100% of the stock of Cuming for approximately $37 million in the form of a combination of cash and shares of Deep Down and assume approximately $13 million of net liabilities based upon Cuming's balance sheet as of December 31, 2009.
On July 13, 2010, Deep Down entered into an amendment to the Purchase Agreement, by and among Deep Down, Cuming and the selling stockholders (the "Amendment") dated effective as of June 30, 2010, to provide for an extension of the date on which Deep Down or the selling stockholders may terminate the Purchase Agreement. The Amendment extended the date for which either of Deep Down or the selling stockholders may terminate the Purchase Agreement if the acquisition is not completed to July 31, 2010, provided that the party wishing to terminate is not in breach of the Purchase Agreement. The acquisition has not been completed and the Company has not entered into another amendment to extend the closing date; however, neither party has terminated the agreement. The Company plans to finance the acquisition with a combination of debt and equity and is actively engaged in negotiating terms with several financial institutions and private equity firms. Nevertheless, consummation of the transaction remains subject to several conditions including Deep Down's obtaining adequate external financing to fund the approximately $34 million cash component of the purchase price.
WORKING CAPITAL
The Company's working capital declined by $3.9 million to a negative $2.8 million at June 30, 2010 from $1.1 million at December 31, 2009 primarily as a result of reclassifying $2.6 million of its long-term debt to current liabilities. All of the debt from one of the Company's lenders in the amount of $3.4 million is due April 15, 2011. The Company is currently in discussions with several lenders who have expressed interest in refinancing the Company's debt. The Company's cash balance was $1.1 million at June 30, 2010 compared to $0.9 million at December 31, 2009.
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