Deep Down Incorp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Deep Down's third quarter 2021 conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you'll be invited to participate in a question-and-answer session. As a reminder, this call is being recorded today, Friday, November 12, 2021. A detailed disclaimer related to Deep Down's forward-looking statements is included in the press release issued this Friday morning and filed with the SEC. It is also available on the company's website, deepdownincorporated.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 on the website. Listeners are cautioned to not place undue reliance on these forward-looking statements, which speak only as of 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'd like to turn the call over to your Chief Executive Officer, Charles N. Njuguna. Please begin.

Charles N. Thank you, Norma. Good morning, and thank you for joining us today. When we last got together, we mentioned the $60 per barrel oil price as a positive sign for the industry. and the industry having largely adapted to managing projects at that price point. At the time, there was cautious optimism for that price level to hold for the longer term, but not too many people were making plans with $80 per barrel in mind. Three months later, here we are, and there are increasing projections about prices getting to levels not seen since the early to mid part of the last decade. However, the last 18 to 24 months have taught us all to be cautious, in light of the inherent uncertainties of the future. It is against this backdrop that we view our increased revenues for the past nine months of this year compared to the same period last year as a positive sign, though our margins are depressed by various unfavorable factors. In addition to pricing pressure from increased raw material costs, our customers are still exhibiting some signs of hesitancy on some of their projects, leading to limits on their budgets and likewise limits to what we are able to charge for our products and services. To help them streamline their projects, we have also been willing to subcontract certain aspects of their projects, opening us up to a higher proportion of third-party pass-through costs at minimal margin on a number of our projects, which in turn has led to lower than ideal margins. Despite these lower margins, this strategy is beginning to bear fruit as we have received invitations to bid on projects we otherwise would not have participated on. and even recently received a contract for a new product for us from a customer who has appreciated being able to procure different products through us. What began as a $46,000 scope of work has now turned into hundreds of thousands of dollars worth of work from an oil company we hadn't worked with in several years. Speaking of rekindled customer relationships, we recently announced another carousel project where we are utilizing the second of our two large carousels after using the first one earlier this year. These projects are continuing to spawn new conversations around the use of our carousels, further validating our assertion that the market will continue to require this kind of equipment, often preferring a rental option rather than a purchase. Ironically, taking an impairment on the carousels at the height of the COVID-19 pandemic has been a blessing in disguise for us, as this has enabled us to offer the carousels for relatively low prices and benefit from the additional services we're able to perform. We couldn't speak of the carousels without mentioning our foray into the offshore wind market. During our last call, we mentioned a decision that was scheduled to be made in October on a project we had bid on. Unfortunately, we are learning that the sense of urgency we are used to in the oil and gas industry does not directly translate to the emerging wind market. A few weeks ago, we were informed that the customer would make a decision by Friday, November 12th. But earlier this morning, we were informed the decision had been further delayed. Based on our engagements to date, a further delay was not a surprise. While we wait for that decision, we were recently approached to discuss the possibility of providing equipment and personnel for a totally different wind project beginning in 2023. While this is still some time in the future, we view the fact that we were approached as further validation of our efforts to raise our hand and be identified as a viable option for the developing offshore wind industry. We will provide further updates as and when they do come available. Further to our efforts to participate in the offshore wind industry, this past Wednesday, we hosted a team from a subsea power company who have provided prototype products and services to customers in other parts of the world and are now looking to do the same here in the U.S. Our discussions with them have revolved around complementing their technology with our offshore environment expertise, particularly around strengthening their products for the subsea environment. then providing the installation equipment and personnel for the final product. This is a different company from the one we described during our last call, which is another indication of our expansionary efforts beginning to bear fruit. And once again, further validation of our previously disclosed strategy of expanding our focus beyond just our core products and services to focus on our core competencies, which are transferable to renewable energy applications. At this point, we have no clear indication of when we will begin generating cash flows from these initiatives. Speaking of the future, business growth remains a key focus for us, so much so that we are enhancing our business development efforts while working on a number of initiatives to reposition the company for the inevitable recovery we foresee. Our optimism for recovery is influenced by a significant increase in bidding activity during the last several months. which could be partially attributed to some organizational changes we made in the way we engage our customers. We expect to make further announcements in coming months about these repositioning initiatives. And speaking of announcements, we do appreciate those of you who have reached out to discuss the possibility of a stock buyback program. While we continue to view this as a good way to return value to our shareholders, we have discussed it at the board level and determined that at this point, and in light of some operational cash needs we foresee in the not-too-distant future. We will hold off on instituting a buyback product for now, buyback program for now, sorry. We will revisit these topics during future meetings and communicate accordingly. 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 September 30th, 2021, Deep Down generated revenues of $3.6 million. This represents a 13 percent increase when compared to revenues of $3.1 million for the three months ended September 30, 2020. The growth in revenues can be attributed to the progressive increase in demand for our subsidy equipment, support services, and rental solutions. Gross profit as a percentage of revenues was 24 percent in the third quarter this year, which represents a 14 percent decrease in gross margin compared to 37 percent we generated Q3 of last year. The declining gross margin was mainly driven by increases in labor and service costs in conjunction with pricing pressure from customers. Additionally, we received rent abatements during the third quarter last year that were not received this year. Selling in general and administrative expenses of $1.3 million for the third quarter of 2021 remained relatively consistent with last year's $1.4 million for Q3 of 2020. Turning to net income, the company recorded net income of $332,000 or 3 cents per diluted share for the third quarter this year, compared to a net loss of $250,000 or a loss of 2 cents per share for the third quarter of 2020. The improvement in net income was mainly driven by recording the full forgiveness of the second PPP loan we obtained in March 2021, as well as maintaining a disciplined operating cost structure. Moving to the balance sheet, our capital structure includes $3.7 million in cash and $5.8 million in working capital as of September 30th, 2021. This is compared to having $3.7 million in cash and $4.1 million in working capital at the same time last year. Also, we received full forgiveness of the entire balance sheet. of the second PPP loan we obtained earlier this year, and as a result, we no longer have any outstanding PPP loan balances on our balance sheet. In summary, we have witnessed increased levels of project activity throughout the first nine months of this year when compared to the same periods last year. Our top line success can be directly linked to the dedicated efforts of our highly skilled team. I am certain that this level of devotion remains unmatched in our industry, which provides me with confidence that this trend will continue throughout the rest of the year. Finally, our balance sheet positions as well to pursue strategic growth opportunities and make investments that will increase our capital efficiency. With that said, thank you for your time, and I will now turn the call back over to Charles.