Deep Down Incorp

Thank you for standing by. Welcome to the Deep Down's first quarter 2021 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, May 11, 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 and on today's call is included in the press release and on the website. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. DeepDOWN 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'd like to turn the call over to CEO, Charles Sukuna. Please go ahead.

Thank you, Rain. Good morning, and thank you for joining us today. With oil prices holding steady above $60 per barrel, optimism is increasing for a modest recovery of the oil and gas industry. However, many industry projections still call for a stronger recovery, possibly in 2022. Despite the macro events of the past 15 months, we were able to generate positive net income during the first quarter of this year for a second consecutive quarter of positive profitability the first time we've been able to do so since the first and second quarters of 2017. I would like to note that at the time, our revenues were 48% higher. This positive trend is evidence of our team's efforts to better utilize our limited resources. As we mentioned during our investor call a few weeks ago, our service teams are now able to travel to most international jurisdictions, which enabled us to successfully perform different offshore scopes of work during the first quarter. With increasing prevalence of vaccines, we are cautiously optimistic that travel restrictions will continue to be lifted. Looking towards the rest of 2021 and beyond, we are seeing a marked increase in bidding activity, especially for smaller scopes of work. As we've previously discussed, there's an increased need for maintenance work as our customers work to extend the life of their assets. We have also seen increased interest in our carousels and other rental equipment. However, Given the prevailing uncertainties in the industry, many of our customers are still holding off on committing to larger new projects. Another challenge we are facing is significant increases in the prices of raw materials. For example, we have seen more than a 50% increase in the price of certain steel components just since July of 2020, which unfortunately we're not able to pass on to our customers. While this is not isolated to us, Our hope is that prices will normalize sooner rather than later. This could further delay the full recovery of our industry due to increased project costs. As we look at the broader energy industry, we are continuing to evaluate opportunities around the transition to a higher proportion of non-traditional energy sources. While some of these sources appear to provide lots of promise for the future, the timing of cash flows continues to be uncertain. Speaking of cash, We continue to await a response from the Small Business Administration on our application for forgiveness for the Initial Paychecks Protection Program loan, better known as PPP, which we received back in April of 2020. At this time, we still expect to get most, if not all, of it forgiven. We have not yet begun the forgiveness application process for the second loan, which we received in March, but we expect to do so as soon as our covered period for the loan is satisfied. These loans have provided us with a much-needed buffer, especially as some of our customers have prolonged their payment terms to us. Trevor will discuss our financial position further in a moment. Our consecutive quarters of profitability also moves us one step closer to being able to secure a credit facility with our bank, as the bank needed to see consistent evidence of our improved financial stewardship. Finally, we recognize that in past periods we often published the backlog of of in-house projects we are working through. Given the heavy proportion of service work we currently have and foresee for the remainder of this year, we are hesitant to set any expectations based on this number. While we currently have close to $10 million of committed work on the books, most of which is currently slated for this year, we are also aware that some of these projects could easily be pushed to next year. On the flip side, our track record of being extremely nimble and responsive to our customers' needs continues to bear fruit when our customers are faced with emergencies. A case in point was an oil company that had a situation develop at an offshore facility in the Gulf of Mexico early this past Saturday morning. By Saturday afternoon, we had developed a plan of action, had some of our personnel come into our shop late Saturday to evaluate materials on hand, and we were waiting on the customer to pursue one final option offshore before we started on our recommended solution. Early Sunday morning, our customer's offshore team determined that their efforts in the field would not resolve their issue and they would need our proposed solution. We then had some of our personnel coming to work that morning, and by 10 p.m. on Sunday night, we had a unit built and ready for testing yesterday morning. As we speak, the unit is headed towards the dock along the Gulf Coast, followed closely by members of our team who will be providing further services to the customers. Such projects cannot be included in our backlog since we are not able to foresee them, but they happen frequently and are a key part of our financial results, and we expect this trend to continue for the rest of the year. Our focus will therefore remain on the levers within our control, which are strategically managing our cash flows and our cost structure as we relentlessly pursue opportunities to further grow our business. 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. For the three months ending March 31st, 2021, DeepTown generated revenues of $3.9 million, which represents a 9% increase when compared to revenues of $3.6 million for the three months ended March 31st, 2020. This increase is a result of having a more consistent level of project activity throughout the first quarter of 2021 versus 2020, which is mainly due to our customers working through their backlog of projects that were previously delayed in 2020 due to the pandemic. Gross profit as a percentage of revenues increased to 44% in the first quarter of this year, which represents a 13% increase in gross margin compared to the 31% we generated in Q1 last year. This increase in gross margin was primarily driven by having a larger proportion of higher margin service work and equipment rental this quarter. Selling general and administrative expenses decreased 9% to approximately $1.6 million for the first quarter of 2021 compared to approximately $1.7 million in Q1 of 2020. This decrease in SG&A expenses was primarily due to the cost reduction initiatives we implemented by the company last year. We remain motivated to pursue opportunistic cost containment measures to improve profitability while being mindful of supporting the growth and operations of our business. Turning to net income, the company reported net income of $148,000, or one cent per diluted share, for the first quarter this year. This is compared to a net loss of $637,000 or a loss of 5 cents per share for the first quarter of 2020. The improvement in net income was mainly driven by higher revenue and improved growth margin in Q1 of this year compared to the same period last year. Our capital structure includes $4.7 million in cash and $5.2 million in working capital as of March 31st, 2021. In early March, we received a second $1.1 million PPP loan, which has allowed us to strengthen our workforce as we fund working capital. As Charles mentioned before, we continue to await guidance from the SBA regarding its decision on the forgiveness of the entire balance of our first PPP loan. We expect to receive the SBA's decision at some point during the second quarter of this year. We also expect to apply for forgiveness of our second PPP loan once the covered period has been satisfied. So, in summary, we began to see positive signs of increased market activity in the fourth quarter of last year as commodity prices gradually recovered to healthier levels. This translated to increased orders in the fourth quarter of 2020, and that trend continued in the first quarter of this year and we encourage this recovery will carry on throughout the rest of the year. Looking forward, our balance sheet positions us well to capitalize on this trajectory of measured growth and allows us to make strategic investments when appropriate to increase our capital efficiency. With that said, thank you for your time, and I will now turn the call back over to Charles.