Deep Down Incorp

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Thank you. Thank you. Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Deep Down's third quarter 2020 conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you will be invited to participate in a question and answer session. As a reminder, this call is being recorded today, Tuesday, November 10, 2020. A detailed disclaimer related to Deep Down's forward-looking statements is included in the press release issued Monday afternoon and filed with the SEC. It is also available on the company's website, deepdowninc.com, or upon request. A reconciliation of non-GAAP financial measures used in the press release on today's call is included in the press release on the website. Listeners are cautioned not to place undue reliance on the forward-looking statements, which speak only as the date made. Deep Down also undertakes no obligation to revise any of its forward-looking statements to reflect events or circumstances after the date made. At this time, I would like to turn the call over to CEO Charles Naguna. You may begin.

Thank you, Sonia. Good morning, and thank you for joining us today. The effects of the coronavirus pandemic and the oil price crash continue to be felt across the oil and gas industry. With the price of oil continuing to hover around $40 per barrel Many of our customers are evaluating their projects with the expectation of prices remaining close to this level for the foreseeable future. Our lower revenues during the third quarter reflect the current market environment with travel restrictions continuing to hamper our ability to execute offshore campaigns across the world. We currently expect to begin seeing increased international travel after the first of the year. However, we are seeing signs of increasing activity in our back-end here in the U.S. Gulf of Mexico. We are in the middle of a number of short-cycle projects, several of which were awarded to us since the end of the third quarter and will be completed before the end of the year. While the scope of these projects are smaller, they do lend credence to our projections from earlier in the year that there will be an increased need for maintenance-related service work towards the end of the year. Our customers have also engaged our service professionals to perform repair work on their offshore assets damaged during this year's record-breaking hurricane season. Another area of opportunity for us is the consolidation that we are seeing across the industry. In particular, our customers are seeing longer lead times as our bigger competitors grow larger and more bureaucratic. We, however, are able to pursue these same opportunities with the same customers because they value our quick response times and unmatched speed of service. or without compromising quality and safety. This can be attributed to several factors, including our size, flexibility, our depth of knowledge, and our extensive experience. Our goal is to continue to grow the business without losing the competitive advantage we provide by being nimble. Looking beyond our traditional products and services, there has recently been an increased focus on the energy transition across the industry. Our largest customers have announced their intentions to diversify their portfolios include new forms of energy, and have started making plans to reorganize their operations to meet these goals. We have also seen similar announcements from the largest oilfield service companies. As we evaluate these developments, we are seeing increasing opportunities to apply our capabilities and expertise towards various non-oil and gas applications. We are encouraged by the promising discussion that we have already been a part of, and we plan on continuing these types of discussions by leveraging existing relationships as some of our customers transition into these new business segments. In order to adequately serve our current and future customers, as well as enhance the value for our shareholders, our primary focus remains on appropriately managing our assets, the most critical of which is cash. Despite the challenging business environment we continue to find ourselves in, we are still able to generate free cash flow, which is undoubtedly a testament to the collective efforts of our team. Trevor will provide more color about this in a few moments. Speaking of cash, we also applied for forgiveness for the Paycheck Protection Program loan we received earlier this year, but we have yet to receive any confirmation from our lender on the Small Business Administration's decision. With that overview, let me now turn the call over briefly to our Vice President of Finance, Trevor Ashurst, for a quick review of our financials. Trevor?

Thank you, Charles. Revenues for the third quarter of 2020 were $3.1 million, compared to revenues of $4.4 million for the third quarter of 2019. This decline in revenue was a combination of having a lower volume of projects in process this year compared to the same period last year, as well as the impact of travel restrictions and the decline in oil prices resulting from the COVID-19 pandemic. Gross margin decreased to 37%. in the third quarter this year, which represents a 5% drop compared to gross margin in the third quarter last year. Shortfall in gross margin was mainly driven by a lower mix of service revenues resulting from COVID-19 disruptions and delays, as well as the expiration of rent abatements received during the second quarter. Selling general and administrative expenses were $1.4 million for the third quarter of 2020. as compared to $2.1 million of SG&A expenses for the same quarter in 2019. But please note that SG&A expenses for the third quarter last year include a $349,000 charge related to the resignation of our company's founder. Excluding this one-time charge, SG&A moves from approximately $2.1 million down to approximately $1.8 million. So on a normalized basis, this translates to a 24 percent decline in SG&A expenses for the third quarter this year as compared to the same quarter in the prior. This decrease in SG&A expense exemplifies the company's continued efforts to remove excess costs on a go-forward basis. We will continue to pursue opportunistic cost containment measures to improve profitability while supporting the growth and operations of our business. Looking at net income, we reported a third quarter net loss this year of $250,000 or a loss of 2 cents per share. As compared to a net loss of $373,000 or a loss of 3 cents per share for the third quarter of 2019, our net loss this quarter is primarily due to reporting lower revenue. We remain focused on sustaining a disciplined capital structure that includes $4 million in cash, $4.5 million in working capital, and no long-term debt apart from the $1.1 million PPP loan as of September 30th. As Charles touched on earlier, we have submitted our application for forgiveness of the entire balance of our PPP loan. However, we have not received guidance from our lender regarding the timing or ultimate outcome of our application by the SBA. We were able to generate $379,000 in free cash flow during the quarter in part by limiting capital expenditures to just $16,000 on certain critical items. This is compared to having negative free cash flow of $1.2 million in the third quarter of 2019. This improvement in free cash flow was primarily due to our cost containment efforts as well as remaining persistent with our collection efforts during the quarter. In summary, it is no surprise that the COVID-19 pandemic continues to disrupt global demand for oil and apply pressure on commodity prices. Our near-term goal must be to remain laser-focused on the preservation of cash to mitigate the economic disruption caused by these macroeconomic events. This approach will not only allow us to endure through these uncertain times, but it will also put us in a more advantageous position to invest in the growth of our business when the time is right. So in the meantime, as the demand for oil continues to recover at a gradual pace, we will devote our efforts to providing our customers with the highest quality products and unmatched services, all while operating with as much capital efficiency as possible. That said, thank you for your time, and that will now turn the call back over to Charles.