Cal Dive International's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 3.13 | About: Cal Dive (DVR)

Cal Dive International, Inc. (NYSE:DVR)

Q1 2013 Earnings Call

May 2, 2013 10:00 am ET


Quinn Hebert – Chairman, President and Chief Executive Officer

Brent D. Smith – Executive Vice President, Chief Financial Officer, Treasurer

John R. Abadie Jr. – Executive Vice President and Chief Operating Officer

Lisa Manget Buchanan – Chief Administrative Officer, General Counsel, Secretary


Martin Malloy – Johnson Rice & Co.


Good day, ladies and gentlemen, and welcome to the Q1 2013 Cal Dive International Earnings Conference Call. My name is Stephanie and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

And now, I would like to turn the conference over to Mr. Quinn Hebert, Chairman, President, and Chief Executive Officer. Please proceed, sir.

Quinn Hebert

Okay, good morning, everyone. Welcome to Cal Dive’s first quarter 2013 earnings call. This morning, joining me is Brent Smith, our Chief Financial Officer; John Abadie, our Chief Operating Officer; and Lisa Buchanan, our General Counsel.

To follow along on this morning’s call, our presentation could be filed on our website, which is at and it can be found under the Investor Relations hot button. If you go to slide two, our General Counsel has some forward-looking cautionary statement remarks.

Lisa Manget Buchanan

Thanks, Quinn. This conference call includes forward-looking statements, particularly with respect to any statements that we make regarding our earnings expectations. The forward-looking statements made during this call are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Our actual future results may differ materially due to a variety of factors. For information concerning factors that could cause our actual results to differ, we refer you to the Risk Factors described in our Form 10-K on file with the Securities and Exchange Commission.

This call also includes certain non-GAAP financial measures. For a reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures, we refer you to our earnings press release and the presentation slides for this call.

Quinn J. Hebert

Okay. Slide three is our agenda where I’ll do some opening remarks, and then I’ll turn the call over to Brent to look into the financials in a little bit more detail. And then we’ll have a Q&A session.

Slide four, our first quarter 2013, the results reflect a significant improvement over last year’s first quarter. The primary drivers for this year’s first quarter financial improvement include strong utilization of the Uncle John in the Gulf of Mexico and the charter of our DSV the Kestrel in Mexico and also the results of our cost saving initiatives that we implemented in the second half of last year. These improvements were partially offset by three items.

We incurred a loss on our complex lump sum job in Australia and we have taken steps to make sure this isn’t repeated in the future. We also had lower than expected utilization on the Texas and West Africa due to changes in the clients’ project plans, and then we had a deterioration of the domestic diving fleet results caused by low seasonal client demand, which negatively impacted overall pricing.

In general for the first quarter, our overall international results were strong as we double the international revenues from a year ago and international revenues made up about 73% of our total revenues for the quarter. Although, we did incur a disappointing lump sum project loss in Australia, we did nonetheless experienced overall strong diving activity for our Australian business unit.

Additionally, two of the three new 4-point DSVs in Australia are fixed on long-term charters that should keep them busy for the remainder of this year. In West Africa, we completed a diving project for a major international contractor and in Mexico, we wrapped up one pipelay project and were awarded as we announced earlier a large $63 million construction projects that are utilized three of our vessels. This project is called the (inaudible) project. It involves the installation of about 12 kilometers of 8 inch pipe plus about a 4 kilometer small diameter pipeline branch system and also involves associated top side hookup work with pipelines and platforms.

This project in Mexico is expected to start offshore construction in the third quarter this year, and then wrapped up by the end of the fourth quarter this year. In April 2013, we also continued our asset sale initiative to divest non-core non-strategic assets. We closed on the sale of certain diving equipment for about $1.7 million in proceeds and we also divested a Louisiana shore-based facility for approximately $6.1 million in proceeds. We paid down a term loan with the combined $7.8 million of proceeds, leaving a $33.7 million term loan balance at April 30.

Looking forward, we expect the Gulf of Mexico to remain a competitive diving construction market with continued pricing pressure in the second quarter. We got off to a slower start in April due to worse than expected seasonal weather. Additionally, we had two key assets completing drydocks in April, the constitution, which is a 4-point SED vessel and the Pacific, which is our large derrick barge in the Gulf of Mexico. Also, we have two additional assets, the Texas a DPSAT diving support vessel and the Lone Star, a pipelay barge going into drydock in May and June of this quarter prior to mobilizing for the backlog work in Mexico.

Although the Outer Continental Shelf drilling activity in the process of a good recovery. As we previously communicated, we haven’t felt this drilling activity translate into meaningful new construction work and don’t expect it to materially benefit us this year.

However, we do believe the intermediate and long-term outlook for business remains favorable in the domestic market as the permitting and drilling environment continues to improve and we do expect a steady and active salvage and decommissioning market for 2013 in the Gulf of Mexico. We expect Mexico to continue to be an active offshore construction market for us in 2013. We continue to bid actively in a number of projects, the Pemex, some of which would benefit us in fiscal 2013.

We currently have about three bids outstanding that we anticipate hearing the outcome over the next few weeks from Pemex. We also continue to bid to provide diving and burial services to other contractors in the Mexico market. We’re preparing to bid in Australia for the next round of LNG infrastructure projects. In the meantime, we’re maintaining a fairly steady diving activity business in Australia.

If you turn to slide five, a backlog of $220 million is a pretty solid positive data point for us. We expect to continue to bid for projects and expected build on that backlog as we get into the summer work season and our tendering levels are in the historical ranges, which is where we expect to be this point in the year.

About 85% of the present backlog is to be performed in 2013. Geographically, about 75% of the backlog is for international based projects and the remainder for the Gulf of Mexico. Based on the present backlog number and the level of expected tendering activity going forward, we anticipate international revenues to be greater than 50% of our total revenues of fiscal 2013.

In closing, we stayed focused on maintaining our low-cost footprint in the Gulf of Mexico. We made progress on executing on our asset divestiture program to reduce our term debt. We’ve continued to diversify our revenue base to take advantage of growing international markets and we’ve managed to place certain assets for long-term charters in Mexico and Australia to provide us a little bit better earnings visibility. It still remains a pretty competitive market out there, but we believe we have taken the actions that are necessary to place the company in a pretty good position.

I’ll turn it over to Brent on slide six to review our financial statements in a little bit more detail. Brent?

Brent D. Smith

Thanks, Quinn and good morning, everyone. Moving to the next slide, it shows our financial results for the first quarter 2013 versus the first quarter 2012. as you can see, and as Quinn mentioned earlier, our first quarter 2013 revenues and EBITDA increased primarily due to increased utilization for the Uncle John, the Kestrel charter in Mexico and various cost savings initiatives. These increases approximately offset by a decrease in profit for rest of our diving fleet in the Gulf of Mexico and Australia primarily due to lower than expected results from lump sum projects there. Our EBITDA margins increased from negative 20% to negative 8%.

Slide seven shows the utilization for the first quarter of this year versus 2012. The increase in the calendar utilization for the saturation diving vessels is mainly due to the increased activity for the Uncle John and the Kestrel. The rest of the utilization figures reflect the slow winter season in the Gulf of Mexico.

Slide eight shows our revenue mix between domestic and international. Our international revenues during the first quarter 2013 doubled compared to the same period 2012, primarily due to increased revenue in West Africa and Australia. However, the margins were low in both regions during the first quarter. In West Africa due to the sudden change in the Texas schedule and in Australia, relating to the lump sum project we previously discussed.

Slide nine shows our net debt levels and secured net debt to EBITDA. We have net debt of $149 million at March 31 consisting of total debt of $160 million and cash of $11 million. This includes our $80 million convertible bond. As expected, our leverage ratio continues to improve with lower debt and improved EBITDA. As Quinn stated earlier, we closed the sale of one of our facilities and certain dive equipment in April. The net proceeds of $7.8 million were used to repay a portion of our term loan. We have shown the pro forma effect of the further reduction of secured debt.

The net secured debt to EBITDA is now down to two times, our lowest ratio in two years. For second quarter, we do expect the revolver to increase due to the expected activity, pickup in Mexico and our normal seasonal pickup in the domestic Gulf of Mexico.

Slide 10 shows revolver capacity or liquidity position. As you can see, it’s very similar to the end of the year we have adequate revolver capacity. And finally, we have included our non-GAAP reconciliations on the final slide for your information.

And with that, I will turn it over to the operator for Q&A.

Question-and-Answer Session


Thank you. (Operator Instructions) The first question comes from the line of Martin Malloy from Johnson Rice. Please go ahead.

Martin Malloy – Johnson Rice & Co.

Good morning.

John R. Abadie Jr.

Good morning. Martin, how are you doing?

Martin Malloy – Johnson Rice & Co.

Good. Could you talk about the bidding environment with Pemex and what you are expecting for the remainder of the year?

John R. Abadie Jr.

Yeah, yes. Marty, this is John Abadie. The bidding activity in Mexico remains pretty strong. As Quinn mentioned, we have three outstanding tenders. We expect to hear on in the next few weeks and we also currently have three bids in house and a pretty good expectation of more bids to come as they continue to come in. So we’re relatively optimistic about the Pemex work.

Martin Malloy – Johnson Rice & Co.

And in terms of the size of these projects, can you give us a range of kind of $25 million to $50 million or is it a little bigger like what you booked here recently?

John R. Abadie Jr.

I would tell you the project we have is generally about a normal project, some being smaller, some being larger. But generally that $50 million, $60 million range tends to be a pretty typical size contract.

Quinn J. Hebert

Yeah. This is very – that’s kind of an average number. As you said, it’s a pretty big range. There is some that are below that or some that are quite a bit more than. So it just kind of depends on which ones you win, but I think that’s pretty good average.

Martin Malloy – Johnson Rice & Co.

Okay. And could you talk about the Uncle John’s performance doing well intervention, the demand for that vessel? Is there opportunity to push up pricing?

Quinn J. Hebert

The work that she has done has been throughout since Q3 of last year has been all predominantly well intervention work and performance has been good. She just completed a job using a riser system and prior to that she was doing mostly riser list work, but the performance has been good. Customers have been happy and we do anticipate being able to press pricing a little bit upwards.

Martin Malloy – Johnson Rice & Co.

Okay. Any update on Cape Wind?

Quinn J. Hebert

No, no change this quarter from last quarter.

Brent D. Smith

We have submitted a bid and it’s still outstanding.

Quinn J. Hebert


Martin Malloy – Johnson Rice & Co.

Okay. So the project is still in need of financing?

Quinn J. Hebert

Yes, yes.

Martin Malloy – Johnson Rice & Co.

Okay. All right. Thank you.

Quinn J. Hebert

Thank you.

Brent D. Smith

Thank you.


Thank you. I’d now like to turn the call over to Quinn Hebert, thank you, for closing remarks.

Quinn J. Hebert

Okay. Well, thank you everyone for listening in. We appreciate your support at Cal Dive and look forward to our next earnings call in the second quarter. Have a nice day.


Thank you, ladies and gentlemen. That concludes your conference for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.

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Cal Dive International (DVR): Q1 EPS of -$0.19 misses by $0.02. Revenue of $80.9M misses by $4.58M. (PR)