Deep Down’s 2013 Financial Results Below Expectations

Deep Down's 2013 Financial Results Below Expectations

Deep Down, Inc., an oilfield services company specializing in complex deepwater and ultra-deepwater oil production distribution system support services, 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 technologically innovative solutions, offset by a decrease of $1.3 million in the 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 the subsea solutions services, offset by a $0.9 million improvement in the ROV and topside equipment rental services. This improvement was attributable to the consolidation of the Morgan City, Louisiana operations into the Channelview, Texas operations in August 2012, significantly reducing the costs there.

The reduced margins in 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. Deep Down’s margins were further reduced by lower than expected margins on a fixed-price fabrication project, and increased rent associated with the new manufacturing facility.

Selling, general and administrative expenses (“SG&A”) for 2013 were $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 the businesses, partially offset by increases in payroll and related costs, property tax, and professional and insurance fees from the expansion efforts.

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.

Ronald E. Smith, Chief Executive Officer, commented: “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.”

Press Release, March 28, 2014

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