HOUSTON, April 15, 2011 /PRNewswire/ -- Deep Down, Inc. ("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 a net loss of $2.8 million for 2010, excluding a $10.1 million non-cash loss on contribution of the net assets of a wholly-owned subsidiary to a joint venture and a $4.5 million non-cash impairment of goodwill.
OPERATING RESULTS
For 2010, Deep Down reported a net loss of $17.4 million, or $0.09 loss per diluted share, after a $10.1 million non-cash loss on contribution of the net assets of a wholly-owned subsidiary to a joint venture and a $4.5 million non-cash impairment of goodwill, on revenues of $42.5 million compared to a net loss of $16.8 million, or $0.09 loss per diluted share on revenues of $28.8 million in 2009.
Revenues increased $13.7 million, or 47 percent, to $42.5 million in 2010 from $28.8 million in 2009. The increase in revenues was due primarily to generally higher demand for our services and products, especially in the GOM and West Africa, leading to higher utilization of our personnel, equipment and ROVs, increased equipment and tooling rentals, greater output of engineered subsea projects (including installation support services) and increased manufacture of products for deepwater and ultra-deepwater projects.
Gross profit increased $4.7 million to $13.6 million in 2010, an increase of 52 percent compared to the prior year. The increase in gross profit was due to the increased revenues described above and to the larger percentage of service rather than engineered product revenue compared to 2009.
The Company's management evaluates its financial performance based on a non-GAAP measure, Adjusted EBITDA, which consists of earnings (net income or loss) available to common shareholders before the effects of net interest expense, income taxes, non-cash stock compensation expense, non-cash impairments, depreciation and amortization and other non-cash items. Adjusted EBITDA for 2010 was $2.7 million compared to negative $2.9 million in 2009. The dramatic improvement was driven primarily by increased gross profit and lower SG&A expenses.
WORKING CAPITAL
The Company's working capital was $1.6 million at December 31, 2010, an increase of $1.1 million from the $0.5 million of working capital at December 31, 2009. This increase is due primarily to the Company's large cash balance at December 31, 2010 ($3.7 million) resulting mainly from a project in process offshore Gabon at year-end.
At December 31, 2010, we were not in compliance with all of the financial covenants associated with $2.9 million in debt we owe to our primary lender. This non-compliance occurred primarily as a result of financial adjustments associated with the closing of the Cuming Flotation Technologies joint venture on December 31, 2010. We have received a waiver from our lender, curing our non-compliance. Additionally, we have received a one-year extension of the maturity date of this debt to April 15, 2012.
Ronald E. Smith, Chief Executive Officer stated, "Our industry has gone through some very difficult times the past two years; however, it is now showing signs of strengthening. Our third and fourth quarters were very positive, showing significant growth in revenues, along with improved margins and reduced expenses. The Company would have reported net income of approximately $0.2 million during the last half of 2010 except for a $10.1 million non-cash loss on contribution of the net assets of a wholly-owned subsidiary to a joint venture and a $4.5 million goodwill write-down. Our cash flow continues to strengthen as well, as can be seen by the $5.6 million improvement in Adjusted EBITDA in 2010 compared to 2009. We expect business to continue to improve over the next several quarters.
"We also expect to earn a high return on our 20% investment in Cuming Flotation Technologies, a joint venture we formed along with York Capital Management, creating a worldwide leader in manufactured marine buoyancy products."
About Deep Down, Inc.
Deep Down, Inc. is an oilfield services company serving the worldwide offshore exploration and production industry. Deep Down's proven services and technological solutions include distribution system installation support and engineering services, umbilical terminations, loose-tube steel flying leads, distributed and drill riser buoyancy, ROVs and tooling, marine vessel automation, control, and ballast systems. Deep Down supports subsea engineering, installation, commissioning, and maintenance projects through specialized, highly experienced service teams and engineered technological solutions. The company's primary focus is on more complex deepwater and ultra-deepwater oil production distribution system support services and technologies, used between the platform and the wellhead. More information about Deep Down is available at www.deepdowncorp.com.
Forward-Looking Statements
Information set forth in this document contain "forward-looking statements" (as defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect Deep Down's expectations regarding future events. The forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the business combination transaction involving Deep Down and Cuming, including future financial and operating results, whether and when the transactions will be consummated, the new combined company's plans, market and other expectations, objectives, intentions and other statements that are not historical facts.
The following additional factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain financing and approvals for the transaction; the risk that any synergies from the transaction may not be realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; the ability to successfully integrate the businesses, unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; the inability to retain key personnel; continuation or deterioration of current market conditions; future regulatory or legislative actions that could adversely affect the companies; and the business plans of the customers of the respective parties. Additional factors that may affect future results are contained in Deep Down's filings with the Securities and Exchange Commission ("SEC"), which are available at the SEC's web site http://www.sec.gov. Deep Down disclaims any obligation to update and revise statements contained in these materials based on new information or otherwise.
DEEP DOWN, INC. CONSOLIDATED BALANCE SHEETS
(In thousands, except par value December 31, December 31, amounts) 2010 2009 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $3,730 $912 Accounts receivable, net of allowance of $245 and $304, respectively 5,518 7,662 Inventory 223 896 Costs and estimated earnings in excess of billings on uncompleted contracts - 267 Prepaid expenses and other current assets 267 225 --- --- Total current assets 9,738 9,962 Property, plant and equipment, net 11,676 20,011 Investment in joint venture 3,146 - Intangibles, net 2,908 12,342 Goodwill 4,916 9,429 Other assets 1,240 960 Total assets $33,624 $52,704 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $5,719 $2,865 Billings in excess of costs and estimated earnings on uncompleted contracts 446 4,984 Deferred revenues 315 89 Current portion of long-term debt 1,609 1,497 ----- ----- Total current liabilities 8,089 9,435 Long-term debt, net 2,443 5,379 Total liabilities 10,532 14,814 ------ ------ Commitments and contingencies Stockholders' equity: Common stock, $0.001 par value, 490,000 shares authorized, 207,399 and 180,451 shares, respectively, issued and outstanding 207 180 Additional paid-in capital 63,751 61,161 Accumulated deficit (40,866) (23,451) ------- ------- Total stockholders' equity 23,092 37,890 Total liabilities and stockholders' equity $33,624 $52,704 ======= =======
DEEP DOWN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ------------ (In thousands, except per share amounts) 2010 2009 ---- ---- Revenues $42,471 $28,810 Cost of sales: 26,559 18,272 Cost of sales 2,327 1,616 Depreciation expense 28,886 19,888 Total cost of sales ------ ------ Gross profit 13,585 8,922 Operating expenses: 13,964 14,371 Selling, general and administrative 1,731 6,538 Depreciation and amortization 4,513 5,537 Goodwill impairment 20,208 26,446 Total operating expenses ------ ------ Operating loss (6,623) (17,524) Other income (expense): (510) (356) Interest expense, net (10,119) - Loss on contribution of net assets of wholly- owned subsidiary (254) - Equity in net loss of joint venture 266 73 Other income, net (10,617) (283) Total other expense ------- ---- Loss before income taxes (17,240) (17,807) Income tax (expense) benefit (175) 1,026 Net loss $(17,415) $(16,781) ======== ======== Net loss per share, basic and diluted $(0.09) $(0.09) ====== ====== Weighted-average common shares outstanding, basic and diluted 193,147 179,430 ======= =======
DEEP DOWN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------ (In thousands) 2010 2009 ---- Cash flows from operating activities: Net loss $(17,415) $(16,781) Adjustments to reconcile net loss to net cash provided by operating activities: Impairment of goodwill 4,513 5,537 Equity in loss of joint venture 254 - Share-based compensation 727 836 Stock issued for services 14 - Bad debt expense 72 192 Depreciation and amortization 4,058 8,154 (Gain) loss on disposal of property, plant and equipment (190) 78 Deferred income taxes, net - (909) Changes in assets and liabilities: Accounts receivable 1,669 2,918 Inventory 79 466 Costs and estimated earnings in excess of billings on uncompleted contracts 267 441 Prepaid expenses and other current assets 233 409 Other assets 189 (113) Accounts payable and accrued liabilities 2,827 (1,454) Deferred revenues 227 80 Billings in excess of costs and estimated earnings on uncompleted contracts (1,567) 2,678 Net cash (used in) provided by operating activities (4,043) 2,532 ------ ----- Cash flows from investing activities: Purchases of property, plant and equipment (2,634) (6,117) Proceeds from sale of property, plant and equipment 251 148 Investment in cost method securities (25) (200) Cash paid for equity investment in joint venture (1,400) - Contribution of net assets of wholly- owned subsidiary 10,119 - Proceeds from final settlement of acquisition of Flotation - 58 Cash paid for capitalized software (278) (614) Proceeds from note receivable (87) (22) Change in restricted cash - 136 Net cash provided by (used in) investing activities 5,946 (6,611) ----- ------ Cash flows from financing activities: Proceeds from sale of common stock 1,901 - Stock cancelled for payroll taxes (25) - Borrowings of long-term debt - 3,000 Repayments of long-term debt (961) (504) Net cash provided by financing activities 915 2,496 --- ----- Change in cash and equivalents 2,818 (1,583) Cash and cash equivalents, beginning of period 912 2,495 Cash and cash equivalents, end of period $3,730 $912 ====== ====
DEEP DOWN, INC. NON-US GAAP FINANCIAL MEASURES (Unaudited) The table below presents the reconciliation of net loss to Adjusted EBITDA for the years ended December 31, 2010 and 2009:
Year Ended December 31, ------------ 2010 2009 ---- ---- Net loss (17,415) (16,781) Add back interest expense, net of interest income 510 356 Add back share-based compensation 727 836 Add back goodwill impairment 4,513 5,537 Add back loss on contribution of net assets of wholly-owned subsidiary 10,119 Add back depreciation and amortization 4,058 8,154 Add back income tax expense (benefit) 175 (1,026) Adjusted EBITDA $2,687 $(2,924) ====== =======
Adjusted EBITDA. Our management evaluates our performance based on a non-GAAP measure, Adjusted EBITDA, which consists of earnings (net income or loss) available to common shareholders before cumulative effect of accounting change, net interest expense, income taxes, non-cash stock compensation expense, non-cash impairments, depreciation and amortization and other non-cash items. This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with U.S. GAAP. The measure should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing or financing activities, or other cash flow data prepared in accordance with U.S. GAAP. The amounts included in the Adjusted EBITDA calculation, however, are derived from amounts included in the accompanying unaudited consolidated statements of operations.
We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used by investors in our industry to measure a company's operating performance without regard to items such as income taxes, net interest expense, depreciation and amortization, and non-cash stock compensation expense which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired; it helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest) and asset base (primarily depreciation and amortization) and actions that do not affect liquidity (stock compensation expense and goodwill impairment) from our operating results; and it helps investors identify items that are within our operational control. Depreciation and amortization charges, while a component of operating income, are fixed at the time of the asset purchase or acquisition in accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.
The table below presents the reconciliation of net loss to net income before loss on net assets of wholly-owned subsidiary and goodwill impairment:
Six Months Ended Six Months Ended June 30, December 31, -------- ------------ 2010 2009 2010 2009 ---- ---- ---- ---- (In thousands) Net loss $(2,998) $(2,491) $(14,417) $(14,290) Add back loss on contribution of net assets of wholly-owned subsidiary - non- cash - - 10,119 - Add back goodwill impairment - non-cash - - 4,513 5,537 Net income (loss) before loss on contribution of net assets of wholly-owned subsidiary and goodwill impairment $(2,998) $(2,491) $215 $(8,753) ======= ======= ==== =======
Year Ended December 31, ------------ 2010 2009 ---- ---- (In thousands) Net loss $(17,415) $(16,781) Add back loss on contribution of net assets of wholly- owned subsidiary - non-cash 10,119 - Add back goodwill impairment - non-cash 4,513 5,537 Net income (loss) before loss on contribution of net assets of wholly-owned subsidiary and goodwill impairment $(2,783) $(11,244) ======= ========
Deep Down, Inc.
CONTACT: Deep Down, Inc. Investor Relations, +1-281-517-5000
Web site: http://www.deepdowncorp.com/
