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Cal Dive International, Inc. (NYSE:DVR)

Q3 2013 Earnings Conference Call

November 7, 2013 10:00 AM ET

Executives

Quinn J. Hébert – President and Chief Executive Officer

Lisa Manget Buchanan – General Counsel

Brent D. Smith – Chief Financial Officer

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013, Cal Dive International Earnings Conference Call. My name is Quinn, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions)

As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Mr. Quinn Hébert, President and CEO. Please proceed.

Quinn J. Hébert

Okay, great. Good morning, everybody. Welcome to Cal Dive’s third quarter 2013 earnings call. This morning on the call with me is Brent Smith, our Chief Financial Officer; John Abadie, our Chief Operating Officer; and Lisa Buchanan, our General Counsel.

To follow along this morning’s presentation, the presentation can be found on our website at www.caldive.com under the Investor Relations hot button. If you turn to Slide 2, our General Counsel will provide our cautionary statement.

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. Hébert

Okay. Slide 3 has our standard presentation outline, so I’ll jump right to Slide 4. Turning to Slide 4, we had better gross profit and EBITDA performance than last year’s third quarter, initiatives third quarter, but we had frankly expected most significant improvements at the beginning of the 2013 third quarter. Third quarter was hit pretty hard by number of weather fronts throughout the Gulf of Mexico, including Hurricane Ingrid, as well as a number of tropical depressions.

As many of you know on the call, the Gulf of Mexico market is more of a seasonal business and the third quarter is typically our best weather month for offshore work, but 2013 was a little bit different. These weather fronts pushed our offshore fleet into safe port and caused us cumulatively nearly a month of downtime in the U.S. market with interrupted project schedules due to this weather downtime. And we know really could get into anytime in offshore rhythm, which is reflected in our results. And then we did have offshore, we were competing a pretty difficult pricing environment with low margin order work in the U.S. market.

Additionally, the combination is bad weather delayed at the start of our four offshore projects. In Mexico in the Bay of Campeche until late August as we had expected to start those Mexico work earlier in the quarter. Taking a look at three main markets that we complete in the Gulf of Mexico and Australia, and I view the Gulf of Mexico market continues to be a sluggish place to do business, and it’s a very price sensitive marketplace.

We’ve started to see an increase in new construction activity during the third quarter towards the tail end of the quarter primarily offshore pipelay work, but pricing still remains pretty competitive. We are – I’m very encouraged by the recent investments in offshore properties in our various new entities such as Talos Energy’s purchase of the ERT properties from Helix Energy Solutions Group and Fieldwood Energy’s purchase of Apache’s Gulf of Mexico properties over the last few months.

This property transaction should over time increase demand for our services, but the timing of this offshore investment activity translating into meaningful offshore work is difficult to predict. As a result, we’re not waiting for the Gulf to recover fully, as we continue to shift our efforts into increasing our international activity levels. The percentage, example of that is the percentage of our international versus domestic revenues continues to increase at 68% of our 2013 third quarter revenues or international revenues this quarter versus 52% international revenues in the 2012 third quarter. And frankly, we expect this trend to continue.

And the other major market we compete in Mexico, even though our four projects in Mexico started later than expected. Our improvement over the third quarter of 2012 was driven primarily by these Mexico projects as we didn’t have such a large Mexico project backlog last year. Overall, project execution for these combined projects that Pemex is going just about as anticipated and we’re generally pleased thus far with our progress. We’re currently operating five major assets in the region. On the Pemex projects, Mexico continues to be a pretty main focus for us, and we expect bidding activity for the Pemex work to continue to be strong for the coming quarters.

The third major market we compete in Australia, this market remains pretty solid and steady. In Australian market, we’re not just ending and we’re coming into the better summer work season. But primarily performing inspect and repair and maintenance work in Australia at the moment and continuing the diving in offshore support work for the large run LNG project in western Australia. We expect this Australian market to remain fairly busy with a number of LNG infrastructure project expected to continue, to come on stream over the next few years.

Going forward, we expect continued financial improvement. More specifically, we’re expecting better financial performance over the next two quarters, compared to the last year’s first quarter and this year’s first quarter based on the visibility part of our backlog in Mexico and the study we’re coming out of Australia and the summer work season starts to gain momentum. The timing of the financial improvement will ultimately depend on the percentage of each of the four Pemex projects completed by year-end and how much we have left to do next year.

On the asset divestiture front, we’ve executed nearly $10 million of asset sales year-to-date of non-core, non-strategic assets, and that’s on top of the $28 million of assets sales we executed in 2012 fiscal year. It’s difficult to predict the timing of the additional remaining asset sales as we need to will in counterparty in the other side, but our goal is still the use of proceeds to pay down term loan as low as possible by year-end and continue to complete the asset divestiture program.

If you look at Slide 5, on backlog, our backlog at the end of the quarter was $340 million. That number remains on our highest backlog level at the end of the third quarter over the last five years. This compares to backlog of $172 million at December 31, 2012, and $224 million at September 30, 2012 last year’s third quarter.

About 89% of this backlog is international work and about 48% of the total backlog is expected to be performed during the remainder of 2013. This is not only a very good backlog level for us, but it also provides us with much better revenue visibility for the upcoming fourth and first quarters that we’ve had in recent memory. As stated early, we continue to actively bid for a number of fairly large projects to be performed next year in the Mexico market.

In closing, we continue to stay focused on project execution, cost control, and continue our asset divestiture program to reduce our term debt levels.

I will now turn over to Brent on Slide 6 to go over our financial statements a little bit more detail. So thank you, over to Brent.

Brent D. Smith

Thanks, Quinn, and good morning, everyone. Moving to this next slide, it shows our financial results for the third quarter of this year versus third quarter of 2012. As you can see, our third quarter revenues and EBITDA increased primarily driven by our projects in Mexico. The increase in Mexico was partially offset by continuing challenging market in the U.S. shallow water market, even more or so due to unseasonal weather during the third quarter.

Looking forward to the fourth quarter, we expect a similar story except with more Mexico work to be executed during that period. We also recorded an after-tax impairment charge of $13 million, primarily related to our pipelay bars in the domestic Gulf of Mexico as that market continues to be very slow.

Slide 7 shows our utilization for the third quarter 2013 versus 2012. Aside from the challenging U.S. Gulf of Mexico market the decrease in calendar utilization for saturation diving vessels was primarily due to the Mystic Viking being dry dock, during this year’s third quarter preparing for work in Mexico.

Slide 8 shows our revenue mix between domestic and international. Our international revenues during the third quarter of this year increased 47%, compared to the same period 2012, and again this is primarily driven by our revenue in Mexico. Our year-to-date international revenues account for 68% of our total consolidated revenues compared to 47% for the first nine months of 2012.

Slide 9 shows our debt structure and liquidity, the first bar chart shows a significant reduction we have made in our term loan since 2008. We continue to remain focused on selling our strategic assets to pay this loan. The pie chart on the bottom left shows our current debt structure between secured and unsecured debt, as you can see the mix is around 50-50 between the two. The bar chart on the right shows our net secured EBITDA our red shot in a 3Q was flat with the second quarter as we continued with the increased revolver activity for working capital needs, with internal Mexico project.

The pie chart on the bottom right shows our current liquidity situation. At September 30, we have $46 million available on our revolver of quarter and along with $6 million in cash. And finally, we’ve included our non-GAAP reconciliations on the final slide for your information.

And with that, we’ll turn it back over to the operator.

Question-and-Answer Session

Operator

(Operator Instructions). Please hold for our first question. (Operator Instructions) There are no questions at this time.

Quinn J. Hébert

Okay. Well, thank you very much for everyone for listening in, and we’ll look forward to the fourth quarter year-end call. Thank you.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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