Q4 2021 Deep Down Inc Earnings Call
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Good morning, ladies and gentlemen, thank you for standing by welcome to deep down fourth quarter and full year 2021 conference call.
During the presentation, all participants will be in listen only mode.
After the Speakers' remarks, you'll be invited to participate in a question and answer session. As a reminder, this call is being recorded today Tuesday March 29 2021.
A detailed disclaimer related to deep downs forward looking statements is included in the press release issued Monday afternoon, and filed with the S. E C.
It is also available on the company's website deep down Inc, dotcom or upon request.
A reconciliation of non-GAAP financial measures used in the press release on today's call is included in our press release and on our website listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the state made deep debt also undertakes no.
She had to revise any forward looking statements to reflect events or circumstances. After the team made at this time I'd like to turn the call over to CEO Charles do good enough.
Thank you Gigi.
Morning, and thank you for joining us today.
While our 2021 revenues did not rebound to the pre pandemic level of 2019. We are pleased we were able to increase our revenues by about 30% from 2020, However, costume challenges from some of our customers, which can be attributed to the pandemic resulted in bad debt.
Expenses, which impacted our ability to generate operational income.
Gross margins were also impacted by cost inflation and various pricing pressures as well as lower margin activities when some of our projects Trevor.
Trevor will provide further details about our financial results shortly.
But before he does so I would like to take a few minutes. She tried to explain a couple of strategic initiatives, We recently announced.
Shortly after our last Investor call, we announced our intention to relocate the business to a new facility better suited for a diverse product and service offerings.
This announcement was followed by another one at the beginning of this month about a rebranding of the company to better position us for the future energy services.
When we initially moved to our current facility our landlord made several commitments about enhancements to the property.
Not least of which was improved access to water ways by installing a dork.
While we understood. The dog was contingent on various factors, we had a basic expectation of reliable utilities. Unfortunately, these turned out not to be the case.
It is therefore imperative for us to begin evaluating options as we near the end of a lease into the Houston and general taxes industrial real estate market is heating up we did not want to wait until the very end and be forced to scramble and likely settle for another subpar facility.
The facility will be moving to is barely 10 minutes from George Bush International airports about 15 minutes from Exxon Mobil's, a new campus in about 20 minutes from downtown Houston.
Aside from moving closer to our customers. The facility is also about 20 minutes for my residential area in Houston with a high concentration of industry personnel opening up a larger talent pool for us which has historically been a challenge.
Our plan move is already eliciting positive reaction from customers in areas outside our traditional business given the nature of the facility and the Optionality. It provides for us to manufacture store and service different components in different areas with significant expansion capabilities.
All factors being constant once we are fully moved in and not having to pay for two facilities will see a positive impact to the bottom line of about <unk> <unk> per share.
We currently expects to begin realizing these benefits some time in 2023.
Current lease expires in July of 2023, but we are watching would've negotiated exits given various challenges we have faced.
The second major announcement, we made was the rebranding of the company.
As we prepare to celebrate our 20 <unk> anniversary in a few weeks, we took stock of our current products and service offerings and our core competencies relative to the future energy and becoming that it is in our shareholders' best interest to position the company differently from the past.
We have been known throughout our history of providing superior products and services traditionally offered as individual components are as complementary offerings in response to customer requests.
The first aspect of our repositioning will be a shift towards becoming more of a systems provider further supporting our customers' preference for what I, commonly referred to as ethics contracts. This is where engineering procurement construction and installation activities are all provided by one supplier.
We envision this strategy will provide value to our customers by further streamlining their interactions with us and other project participants ultimately lowering their projects execution costs internally. This strategy is already influencing our personnel decisions.
Another aspect of the rebranding revolves around our previous discussions about leveraging our core competencies for growth beyond our traditional offerings.
Area, we repeatedly spoke about last year was growing offshore wind industry, and specifically mentioned our projects we were bidding on.
Unfortunately, we are ultimately unsuccessful on that project, losing out to an incumbent European supplier.
Despite being unsuccessful, we did learn a lot about that industry and the general renewables industry.
Various discussions we were engaged in fiber that validated our decision to rebrand the company to avoid continuing to be pigeon holed as purely a deep water oil and gas service provider.
The vast majority of our core products and services you bought around subsea umbilical, which are generally multi function hoses or cables, which transfer of hydraulic and electric power and fiber optic connectivity from surface structures to see flow facilities.
While my time, we've developed a unique skill sets our own the handling of these cables and hoses such as when a reason projects, while we safely transport 60 miles of umbilical fast from one manufacturing facility to one of our car cells installed in our barge than from our Carso two on installation vessel.
Our ability to safely coil up such long lengths with no injuries personnel or damage to the product led us to the NIM coil, but spelled U K to denote the powertrain is muted by the by the cables and coil and on coil.
We are still awaiting approval from the SEC or our name and ticker symbol changes, which is why our filings still have the name deep down.
As we view the future as coil energy.
We envision growth taking three primary forms.
The first path to value generation from traditional energy sources.
While the current regulatory environment does not engender confidence in large scale deepwater developments. This is giving rise to increased opportunities for customers to extend the life of the existing infrastructure.
Either through adding new components to existing facilities.
As commonly known in the industry, a starbucks or through repairs and maintenance of installed equipment.
Consolidation in the industry, coupled with the shifts I mentioned excuse me a few minutes ago towards epic contracts is also providing opportunities for nemo companies like ours.
Similar to our traditional offerings. We're also seeing opportunities to provide services to customers for renewable energy applications and are actively pursuing some short to medium term opportunities in areas, such as hydrogen and subsea storage.
We would like to caution however that at this time, we cannot guarantee any imminent project awards in these areas.
The second pillar for growth is through partnerships, both within traditional oil and gas as well as and renewable energy industries.
Partnerships could take the form of strategic alliances, where we jointly market our products and services.
Operational joint ventures, where we partner during the execution of our projects or in one situation whereby you aging.
Our consortium arrangement, where we will broaden the scale of what we could offer the markets.
This strategy will enable us to leverage our partners international footprints of our traditional products and services and different locations. While in the case of renewable energy, we would capitalize on our systems integration expertise and offshore installation knowhow to enable the installation of new technologies subsea.
Besides Avenue for growth is development of new offshoot technologies, either organically or inorganically.
This is likely a longer term strategy as we identified gaps in current offerings, especially in newer industries.
However, we are beginning to see renewable energy participants faced challenges that were previously faced by the oil and gas industry.
We are walking when some solutions to meet these challenges.
Our focus on technology is also driven by the push towards electrification of subsea operations, which is also driving us to evaluate the electrification of our own equipment.
The breadth of our offerings is the new firm for our size from design to engineering to manufacturing and installation with installation, including both personnel and equipment.
Given the transferability of our expertise beyond our traditional markets. We are cautiously optimistic about our prospects across all three avenues prospects.
Which could spend more than one path at any given time.
With that overview, let me now turn the call over briefly to our Vice President of Finance Trevor anxious for a review of our 2021 financial results Trevor.
Thank you Charles.
For the 12 months ending December 31, 2021, deep down generate revenues of $17 2 million, which represents a 33% increase when compared to revenues of $13 million for the 12 months ended December 30, <unk> 2020.
The growth in revenues can be attributed to a rise in demand for subsea equipment.
Support services and rental solutions as operators mobilize to work through a backlog of projects during the year some of which were projects previously put on hold in 2020.
As the world figured out how to navigate the pandemic gross profit as a percentage of revenues was 34% for 2021, which represents a 4% decrease in gross margin compared to the 38% we generated in 2020 the.
The compression in margins came from came in the form of low margin pass through third party costs incurred on just a select projects and general increases in the price of materials due to the inflationary environment in which we all currently operate when compared to the prior year. Additionally, we received rent abatements in 2020 during the onset.
And then like that were not repeated in 2021.
Selling general and administrative expenses of 5.9.
$9 million for the year ended 2021 remained relatively consistent with the $6 million for 2020. After you exclude a onetime charge it.
$245000 in 2020 related to the elimination of the C O O position as a company.
Turning to the bottom line. The company reported net income of $2 $3 million were <unk> 19 per diluted share for the year ended 2021 compared to a net loss of $6 $1 million or losses 48 per share for 2020, but note that 2020 included an asset impairment charge of $4 $5 million related.
To work here ourselves, whose future cash flows cannot be objectively projected at that time. The charge was made as well as the one time severance charge for the C. O O I mentioned earlier.
Excluding these aforementioned charges the improvement in net income was mainly driven by the uplift in revenues continuing focus on our administrative cost structure, receiving the full forgiveness of those PPP loans during the year.
And recognizing a refundable employee retention credit claim under the provisions of the cares Act, which weird.
To receive at some point this year.
Shifting to the balance sheet, our capital structure includes $3 $7 million in cash and $7 $1 million in working capital as of December 31, 2021.
This is compared to having $3 $7 million in cash and $4 $1 million and working capital at the same time last year as I. Just mentioned, we received full forgiveness of the entire balance of both PPP loans obtained which means we no longer have any outstanding loan balances on the balance sheet.
In summary, we witnessed strong levels of project activity throughout 2021, especially when compared to 2020. This positive trend is no doubt a tailwind, but our top line success would not be achieved without the hard work determination and collaborative effort of every member of our team.
This level of commitment and enthusiasm.
It provides me with confidence that this trend will continue throughout this year, but that said. Thank you for your time and I'll now turn the call back over to Charles.
Thank you Trevor.
That concludes our prepared remarks, so now I'll turn the call back to the operator to take investor questions Gigi.
As a reminder to ask a question you will need to press star one on your telephone.
Oh your question press the pound key.
And by what we can borrow the Q&A roster.
Our first question comes from the line of Walter Schenker from MAZ Partners. Your line is now open.
Hi, Charles.
Hey, How're you doing sir.
Good good.
Hold on let me get rid of that.
I'm coming back.
It's fairly or it's clear to me, it's clear I think to you too.
It is a significant positive to.
Two the profitability of the company, if we can employ one or more of the camera cells.
Could you just give me some sense. If there are as you look at 2022 additional opportunities to either rent.
Or crossing our fingers sell the carousel can have a call without a carousel question.
Yes, Walter Thanks, Thanks for the question.
And you are correct the.
Providing the car sells.
Provide profitability to the business.
To your question, Yes, we are seeing increased opportunities for them.
We had a number of customers we have been talking to before but it was a bit of a chicken and egg where different customers wanted to see us actually employ them for.
On some projects and now that we've successfully we successfully did it twice last year.
We are actively.
Discussing with a couple of customers on renting them out to them.
But as always I will not.
Until we have actual signed contracts in hand.
I thought I would say for now, but we do have some active opportunities we project for the future.
Okay.
And just as a general question.
Historically, the current facility, which you were leaving.
Uh huh.
Which was in the middle of nowhere near the water.
You know given that some of the things you do a fairly large.
It seemed as if transportation should be a plus how do you transport large equipment out of your new location.
Yes, so the new location is actually is in an area where.
There are other industries.
Baker Hughes is down the street from US, we'll be sharing our complexes schlumberger for some of the large components.
One of the things we were very particular about was literally taking measurements of the ingress and egress at the facility.
Our lines are under facility and those kind of operational items for that very reason and so we.
I tend to we will be able to move them out we do continue to rent out space.
In mobile, Alabama, right on the water at a place where at coined as choose where large vessels can pull in so if we have a project, which absolutely has to be on the water.
Core base, where we rent out well are cornerstones are currently located.
It enables us to do that.
Okay.
Again.
Hopefully.
To start each year. This way hopefully this is the year we can.
Actually monetize even beyond renting a carousel because that would be meaningfully positive to everyone, but good luck. Thank you.
Thank you Sir.
Okay.
Thank you. Our next question comes from the line of Ron Smith from Jim on your line is now open.
Yes.
Hello Charles.
Good morning, Sir how are you doing.
I'm doing wonderful I just wanted to wish you Charles in the whole coil energy team.
Uh huh.
And tell you well done I'm very proud of you.
And as now.
Large investor in coil energy I hope.
For all of you and all of US only the greatest success and these changes as.
I'm counting audio.
Thank you Sarah we appreciate we appreciate that and we wouldn't be doing this without that foundation you said so.
That encourage me very much.
Alright, well good luck and we will talk to you later.
Alright, Thank you Sir appreciate it.
Okay.
As a reminder to ask a question will need to press star one on your telephone to withdraw your question press the pound key.
At this time I am showing no further questions I would like to turn the call back over to Charles Giordano for closing remarks.
Thank you Gigi and thanks to all of you who joined our call today.
While the broader energy industry continues to be impacted by factors beyond our control as.
As you say it would be continue to be laser focused on the levers we can control, while we are actively pursuing different growth opportunities.
Very much appreciate all of your support and we look forward to speaking with you again.
In about a month and a half and with that let's conclude today's call. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Yes.
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