USA: Deep Down Releases 2012 Results and Amendment to Credit Facility

Deep Down, Inc. (“Deep Down” or the “Company”), an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services reported Net Loss Before Impairment of Long-Lived Assets and Joint Venture Results of $0.1 million for 2012, an improvement of $2.2 million from 2011.

For 2012, Deep Down reported a net loss of $2.5 million, or $0.24 loss per diluted share, compared to net income of $2.1 million, or $0.21 income per diluted share, in 2011. This loss for 2012 includes an operating loss of $2.3 million and an impairment write-off of assets of $2.2 million for the ROV and equipment rental services. These services were operated from Morgan City, Louisiana. In September 2012, the facility was closed and all of the assets were consolidated with our subsea solutions services operations in Channelview, Texas.

Revenues for 2012 were $29.0 million. Revenues for 2011 were $27.4 million. The $1.6 million increase in revenues in 2012 compared to 2011 period was due primarily to an increase of $6.2 million in our subsea solutions services due to continued strong demand for our technologically innovative solutions, offset by a decrease of $4.6 million in our ROV and topside equipment rental services due to decreased demand.

Gross profit for 2012 was $9.3 million, or 32 percent of revenues. Gross profit for 2011 was $7.5 million, or 27 percent of revenues. The $1.8 million, or 5 percentage-point increase in gross profit in 2012 compared to 2011, was due primarily to a $3.3 million increase related to our subsea solutions services, offset by a $1.5 million decrease related to our ROV and topside equipment rental services, both due to the previously mentioned changes in demand for our services.

Selling, general and administrative expenses (“SG&A”) for 2012 were $9.0 million, or 31 percent of revenues. SG&A for 2011 was $8.4 million, also 31 percent of revenues. The $0.6 million increase in SG&A in 2012 compared to 2011 was due primarily to a $1.4 million increase in bad debt provision, and a $0.6 million reduction in joint venture management services reimbursements due to cancellation of our management agreement. These increases were partially offset by reductions in professional fees of $0.8 million, due primarily to lower accounting and auditing fees, and decreased payroll and related expense of $0.5 million, due to reduced bonus expense.

Impairment of long-lived assets was $2.2 million in 2012. In August 2012, due to poor operating performance, the company closed down the office in Morgan City, Louisiana, the base of the ROV and topside equipment rental services operations, and consolidated it into the subsea solutions services operations in Channelview, Texas. In November 2012, it evaluated the ROV and topside equipment rental services intangible assets in light of the consolidation and determined that they had no future economic benefit. As a result, the company recorded impairment expense of $2.2 million in 2012.

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 $3.8 million in 2012, however without the cash loss from the ROV and topside equipment rentals it would have been $4.8 million. Modified EBITDA was $1.0 million in 2011. The $2.8 million increase in Modified EBITDA in 2012 compared to 2011 was caused primarily by increased gross profit before depreciation and non-recurring operational consolidation expense of $2.0 million. Additionally, SG&A before share-based compensation, bad debt provision, and non-recurring operational consolidation expense increased $1.0 million; partially offsetting these increases was a decrease in other income of $0.3 million.


At December 31, 2012, Deep Down had working capital of $6.0 million, including cash and cash equivalents of $1.5 million. Additionally, on March 5, 2013 entered into the fifth amendment of the bank credit agreement, which among other things, increased the committed amount under our revolving credit facility to $5 million from $2 million. Because of these factors, and because of cash it expects to generate from operations, the company believes that they will have adequate liquidity to meet the future operating requirements.


The industry remains strong in 2013 and the demand for our services and products continues to increase. The work in the Gulf of Mexico is the strongest it has been in four years. The international demand for our products and services continues to increase as well.

Ronald E. Smith, Chief Executive Officer, stated, “2012 was a banner year for our company. Our core subsea solutions services unit generated operating income of $5.5 million. We cut costs dramatically, and cleaned up our balance sheet by closing our unprofitable ROV and topside equipment rental services operations in Louisiana. Our backlog has doubled to approximately $20 million, and we have expanded our borrowing capacity under our bank credit facility. We believe, because of all the steps we took in 2012, we are poised to achieve great things in 2013 and beyond. We should have substantial improvement in our net income and EBITDA.”

Press Release, March 27, 2013

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