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 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, August 8th, 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, coilenergy.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. 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 Jaguna. Please go ahead.

Thanks, Gary. Good morning, and thank you for joining us today. Our second quarter results reflect the ongoing challenges in the offshore oil and gas industry. inflation, certain geopolitical events, and the possibility of a prolonged recession continue to weigh on our customers' willingness to commit to long-term deepwater projects. This hesitation was best exemplified by a couple of oil and gas-related carousel opportunities, totaling more than $6.5 million, which were supposed to have kicked off during the first half of this year, but were both delayed for various reasons. We had gone through several rounds of clarifications with the customers, and in both cases, had commitment dates by which the customers expected to initiate the projects. Unfortunately, this is a situation we have witnessed with other projects as well, but we remain cautiously optimistic that such situations will abate in coming months. While these occurrences are outside our control, we remain focused on the levels within our control as we work to grow the business. Speaking of growth, during the second quarter, we reaped some benefits from our efforts to expand beyond our traditional lines of business. We successfully provided cable management services for a military project in the northern half of the United States and received an order to provide ongoing hydrogen energy related services on what is currently slated to be a long-term ongoing basis. These projects not only demonstrate the transferability of the expertise we have developed over the past 25 years, but they also validate our strategy to shift our focus from core products and services to core competencies. In addition to these projects, we are evaluating various opportunities in other areas of the energy spectrum, such as shallow water applications for offshore wind, and even carbon capture, utilization, and storage. Aside from these non-traditional opportunities, we are seeing a marked increase in building activity within our traditional oil and gas business. During the first half of the year, we primarily worked on service projects. This was a result of most of our customers not having budgeted for new developments in 2022. But as we look towards the future, we are engaged in active discussions about various solutions for new developments in 2023 and beyond, with our customers displaying high levels of expectation for budget approvals for these new developments. Concurrent with these discussions, we are capitalizing on the reduced utilization of our internal resources to engage in various research and development activities with the intention of increasing our share of our customers' wallets. These efforts have enabled us to identify opportunities for new products for both traditional oil and gas as well as renewable energy applications with even some early promise of potentially patentable offerings. We will provide further updates in due course as these efforts come to fruition. These growth efforts are in addition to the strategic initiatives we previously announced namely the rebranding and the relocation of the company. As far as the rebranding goes, 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. And speaking of the relocation, we now have full possession of the new facility, which we'll be moving into, and we're targeting to complete the move within this third quarter. which will enrich our team's ability to support the needs of our increasingly diverse customer base. And with that overview, I will now turn the call over to our Vice President of Finance, Trevor Ashes. Trevor?

Thank you, Charles. For the three months ending June 30th, 2022, Deep Down generated revenues of $3.5 million. This represents a 23% decrease when compared to revenues of $4.5 million for the three months ended June 30th, 2021. This year over year shortfall in revenues was driven by project mix that reflects current demand for shorter duration projects utilizing our support services and rental solutions. Gross profit was 1.5 million or 42% of revenues for the second quarter of 2022. This represents 11% increase in gross margin compared to the 1.4 million or 31% of revenues we generated in the second quarter of 2021. The improvement in gross margin was the result of project mix. More service and rental work means we incurred less material costs. Additionally, several of the larger contracts we worked on last year included some low margin pass-through third-party costs that were not repeated this most recent quarter. Selling general and administrative expenses were $1.4 million, in Q2 2022 compared to $1.8 million in Q1 of last year. The 19% decrease in SG&A was mainly due to incurring a $534,000 charge to our reserve for downfall accounts last year that was not repeated this year. Turning to the bottom line, the company reported net income of $177,000 for Q2 of 2022, which translates to one cent per diluted share. This is compared to generating net income of $724,000, or $0.06 per share, for Q2 of 2021. The comparative decline in net income was mainly because we recorded the forgiveness of our first PPP loan in Q2 of last year, which of course is not repeated in this most recent quarter. Now shifting to the balance sheet, our capital structure is composed of $6.3 million of working capital, which includes $3.4 million in cash, $4.7 million in trade receivables as of June 30, 2022. This is compared to having $7.1 million of working capital as of December 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 the employee retention credits claimed under the provisions of the CARES Act. We still do not have visibility on when these credits will be paid, but we expect to receive these funds at some point over the next few quarters. This concludes the financial summary for Q2, so thank you for your time, and I'll now turn the call back over to Charles.