Deep Down Incorp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Deep Down's first quarter 2022 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, Wednesday, May 11, 2022. 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-thinking 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 CEO Charles Draguna. Thank you. Please go ahead.

Thank you, Melissa. Good morning, and thank you for joining us today. Our first quarter results highlight continued softness in the offshore recovery, even though we have seen an increase in bidding activity since the beginning of the year. There has also been an uptick in drilling rig day rates, an early indicator of our customers' future aspirations. The first quarter continued the trend of being heavily reliant on service projects, leaving our manufacturing infrastructure largely underutilized. We recognize that meaningful growth will only be realized from increased product sales, and we are keenly focused on growing this aspect of our business. Trevor will provide further details on our financials in a moment, But first, I would like to provide a few updates. Since 2012, we have been reporting an ongoing legal dispute with one of our customers. We are pleased to finally report that both parties have accepted a mutual release of all claims and we can finally put this legal issue behind us. We are especially pleased not to have to carry this issue forward as we launch our new brand. Unfortunately, this issue has not impacted our ability to work with this customer. Speaking of the rebranding, Our customers have continued to receive it positively, and we have not encountered any operational issues from it. If anything, it has led to increased engagement with existing, former, and potential new customers, providing us with lots of opportunities to discuss our future offerings. However, we are still awaiting approval of our name and ticker symbol change from the Financial Industry Regulatory Authority, better known as FINRA, which is why our filings continue to bear the name deep down. We anticipate approval prior to the next filing. Another major strategic initiative we have been working on is the relocation of our business. These plans are picking up steam now that we have taken possession of the main office building at the new facility. We have a 90 day build out period and expect to be substantially moved in by the beginning of August. We do anticipate beginning limited operations at the new facility by July and already have customer furnished components scheduled to be delivered there in July for value addition activities by our team. Aside from our increased ability to serve different customer segments, the new facility will also enhance our productivity, given that it is a fully climate-controlled environment and lends itself well to compartmentalized production. This will enable us to reduce the environmental impact of operations while providing a vastly improved work environment for our personnel. And speaking of future plans, To facilitate our growth intentions, we have been evaluating our internal structure and incrementally restructuring the organization with our future goals in mind. We expect this exercise to continue through our move and have different internal working groups focused on various initiatives. These changes will also enable us to operate in alignment with our three-pronged growth strategy revolving around systems, technology, and partnerships. As a reminder, Our systems pillar primarily relates to our legacy offerings in the oil and gas segment, but represents the shift in our approach to becoming a provider of integrated systems rather than just providing individual components. We are, however, seeing some opportunities beyond oil and gas, which we will be revealing in due course. We have previously realized success from this strategy, and we are actively engaged in discussions with some customers on integrated solutions. Our technology pillar revolves around the development of new equipment and associated services that straddle both traditional oil and gas as well as renewable energy sources. Our product development team is already hard at work and in just a short amount of time has already identified a potentially patentable offering. However, further validation of these efforts is required before we can publicly disclose the products. This pillar will also include our ongoing efforts to further improve the environmental friendliness of our existing equipment. And lastly, partnerships, which will involve collaboration with like-minded organizations, where we will seek to leverage our core competencies to jointly capitalize on future opportunities. This will likely be a longer-term strategy and could take different forms, such as project-specific consortia, strategic alliances, or operational joint ventures. We look forward to future announcements about these pillars and especially how they will contribute to the growth of our business. And with that overview, I will now turn the call over to our Vice President of Finance, Trevor Ashurst. Trevor?

Thank you, Charles. For the three months ending March 31st, 2022, Deep Down generated revenues of $3.6 million, which represents an 8% decrease when compared to revenues of $3.9 million for the three months ended March 31st, 2021. This shortfall in revenues during the quarter was driven by project mix and reflected the current demand for short duration projects utilizing our support services and rental solutions. Gross profit was 1.4 million or 34% of revenues for the first quarter of 2022. This represents 5% decrease in gross margin compared to the 1.7 million or 38% of revenues we generated in the first quarter of 2021. Margin compression came in the form of low margin pass-through third-party costs incurred on select projects and a slight increase in the cost of labor during the most recent quarter. Selling general and administrative expenses were $1.7 million in Q1 2022 compared to $1.5 million in Q1 2021. The 9% increase in SG&A was mainly due to increased branding and marketing expenses related to our recent rebranding efforts Charles touched on earlier. Turning to the bottom line, the company reported a net loss of $264,000 for Q1 2022, which translates to a two cent loss per diluted share. This compared to generating that income of $148,000 or one cent per share for Q1 2021. The comparative decline in net income was mainly driven by the aforementioned decline in revenues and increase in administrative costs associated with our rebranding efforts. Shifting to the balance sheet, our capital structure is composed of $6.5 million in working capital, which includes $2.7 million in cash and $6.3 million in trade receivables as of March 31st, 2022. This is compared to having $7.1 million of working capital as of March 31, 2021, which includes $3.7 million in cash and $6 million in trade receivables. We also have an outstanding $650,000 receivable related to employee retention credits claimed under the provisions of the CARES Act. We expect to receive these funds at some point over the next few quarters. In summary, we remain focused on providing our customers with a suite of integrated solutions to support the full life cycle of a project, from design and engineering and project management to manufacturing, installation, maintenance, and asset life extension. We have the most experienced and dependable personnel in the industry, which gives me confidence we'll achieve our ongoing pursuit for growth as the year progresses. Thank you for your time. I will now turn the call back over to Charles.