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Cal Dive International, Inc. (NYSE:DVR)

Q1 2008 Earnings Call

May 1, 2008 12:00 pm ET

Executives

Quinn J. Hébert - President and Chief Executive Officer

Lisa Manget Buchanan - Executive Vice President, General Counsel and Secretary

G. Kregg Lunsford - Executive Vice President, Chief Financial Officer and Treasurer

Scott T. Naughton - Executive Vice President and Chief Operating Officer

Analysts

Jim Rollyson - Raymond James

Michael Marino - Johnson Rice & Company

Stephen Gengaro - Jefferies & Company

Joe Gibney - Capital One Southcoast, Inc.

Roger Read - Natexis Bleichroeder

Sonny Randhawa - Bank of America

David Smith - JP Morgan

Karen David-Green – Oppenheimer

Joe Hill – Copia Capital

Operator

Welcome to the first quarter 2008 Cal Dive International earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Quinn Hébert, President and CEO.

Quinn Hébert

Welcome to Cal Dive’s first quarter 2008 conference call. For those of you who want to follow along, presentation is available at our website at www.caldive.com on the Investor Relations hot link.

With me today is Scott Naughton, our Chief Operating Officer; Kregg Lunsford, our Chief Financial Officer; Lisa Buchanan, our General Counsel; and Brent Smith, our Director of Finance and Investor Relations.

We’ll follow our typical format where Lisa will give us an important message. I’ll make some introductory remarks, then Kregg will walk us through the presentation briefly, and then we’ll open the phone lines for Q&A Session.

Lisa Buchanan

This conference call includes forward-looking statements, particularly with respect to any statements that we make regarding our earnings and 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 reconciliation of the non-GAAP financial measures to their mostly direct comparable GAAP financial measures, we refer you to our earnings press release and the presentation slides for this call.

Quinn Hébert

At first, I’d like to start the call with just giving a little bit of historical perspective on the first quarter of 2008. In the US, we spent the last three years or so cleaning up after the hurricanes, of Ivan, Katrina, and Rita in the Gulf. During that phase, we saw an initial frantic pace of activity that included offshore emergency inspections and repairs, production restoration, and salvage work at the real heightened levels of activity. We saw that start to level off towards the end of 2007. It got a little bit more methodical, planned pace of primarily salvage activity and more typical seasonality we expected.

We’ve also known for quite some time that many of our customers are investing more and more of their capital dollars overseas. Given these factors over the past two years, we’ve invested in significantly expanding our international capabilities and consolidating our leadership positions in the Gulf.

If you look at the first quarter 2008, as we expected, returning to more typical winter seasonality where our clients are going to plan projects in better weather months, which are primarily late second quarter, third quarter and fourth quarter.

We indeed had bad weather in the first quarter which significantly reduced the level of activity offshore than Gulf of Mexico. If you compare the winter weather between 2007 first quarter and 2008, 2007 was more typical winter weather. Along 2008, the rate of high sea states, by that I mean sea states in excess of five feet, was about double the rate in the first quarter of ’07. This obviously negatively impacted our best utilization, as you’ll see from our slides later on.

Another factor playing a prominent role in the first quarter of ’08 is that it looks like many of our clients in the US, after the last two or three years of fast-paced activity, spending significant capital dollars to let the production back on stream, have taken a slight break to catch their breath the first three months of this year. It looks like they pulled their capital spending in and make more efficient use of the capital of playing the projects in good weather periods so that they don’t have to assume the risks of paying for weather stand-by days in the first quarter. The stand-by weather day costs are basically sub-costs and don’t advance to progress of an offshore project.

A factor, however, in our favor for the first quarter was the success of our international expansion with our international group contributing approximately 50% of the first quarter revenues which had doubled over last year’s contributions. Give you an idea, our international progress is about 20% for ’07 revenues which came from the international area. We expect to be on track for the full year where we see about 35% of our total revenues to be generated outside the US.

During the first quarter, we did take advantage of this slow period to schedule close to half of our annual service days for our ships and barges related to regulatory drive-ops and capital improvements.

We haven’t been resting in the first quarter. We spent the last 90 days building up our backlog from $175 million at year-end to about $450 million, which is about a 150% increase in one quarter. Geographically, the backlog breaks down to about one-third of it occurred in the Gulf of Mexico; one-third will be international; and one-third will be in the US East Coast.

Additionally on our backlog, 90% is to be completed this year and we now have two big integrated service projects that we’re proud of. The first win was the $35 million salvage project announced early this year and now the approximately $125 million East Coast project win, which we’re pretty excited about.

These project wins not only reflects our customer’s confidence in our business model but also demonstrates the strategic rationale for the Horizon acquisition which we completed in early December ’07 last year. In terms of tendering going forward, our tendering activity levels, both in the US and internationally, remain at the high level and we expect to continue to build on our existing backlog in the coming months.

I’ll now give you a little bit of an update on the integration of Horizon and Cal Dive. For us, the integration’s progressing according to plan. Give you an idea: Combined senior leadership team is in place. We meet weekly; we’ve held town hall style meetings with our onshore and offshore workers worldwide. We’ve got tremendous feedback input from those men and women. We have a lot of talent in the organization. And our growing backlog so soon after the Horizon acquisition reflects not only good integration planning by integration teams that were comprised of employees from both companies, but also an awful lot of hard work and determination by the combined organization.

In connection with the integration and planning, we took critical look at our fixed costs at all levels and we’ve reduced the headcount by about 40 persons. Those are always tough decisions but the business is going to better for the long-term. For those affected employees, we treated them with dignity and respect that they earned and deserved.

With our headcount reductions with certain other costs savings initiatives in place throughout various levels in the company, and the revenue pull through opportunities, such as the two project wins we noted earlier, we expect to be on track to deliver the $10 million of synergy we identified at the announcement of the Horizon acquisition.

In closing, the market has purely turned in the Gulf with typical seasonality and worldwide, the fundamentals remain strong for our business. Frankly, this type of marketplace is stressed at Cal Dive, with a strong balance sheet, the right asset of personnel and strong track record of delivering projects safely and successfully offshore over the last 30 years.

If you look at our customer’s general confidence in the present elevated commodity price environment, if you look at our customer’s increased capital spending year over year, and Cal Dive’s increased backlog, both in the US and internationally, we believe we’re well positioned to continue to be successful in the market that we compete in.

I’ll now turn it over to Kregg to review the details of first quarter ’08 financial results.

G. Kregg Lunsford

We will go to the slides if you will look with me at the summary of results. As you can see, revenues were relatively flat quarter over quarter at $145 million as we experienced significantly reduced utilizations relative to prior year first quarter and to recent years overall. This was driven by the severe winter weather Quinn described during the first quarter 2008 compared to historic leverages. The impact was partially offset by revenues contributed during the quarter from certain assets we acquired in the Horizon transaction.

The combination of the drop in utilization combined with our increased exposure, in terms of overall fleet size, led to a $33 million decline in gross margins and essentially a break even quarter in terms of net income. As you can see, EBITDA was equally impacted for those same reasons.

As we stated in our press release, the financial results for this quarter are in line with our expectations and we are reaffirming our annual guidance of $1.01 to $1.35 for 2008.

Moving on to the next slide, we provided a statistics on utilization. I think the slide pretty much speaks for itself. You can see the significant declines, period over period across all asset classes. For perspective’s sake, it’s important to keep in mind that we were experiencing historically high utilization during the first quarter of 2007.

The next slide is really the key drivers. And our results, and Quinn touched on these so I won’t spend a lot of time, we talked about the unusually severe weather in the Gulf during the first quarter. Second, another contributing factor was that our customers have just come off an extended capital-spending period following the hurricanes and they were very much ready to take a breather. Based on this spending fatigue, they also elected not to take any weather risks during the wet months. As you will remember, Cal Dive is only willing to take weather risks itself, typically from May to October.

And then finally, we discussed before but want to reiterate that our perspective gross margins will be lower than our historical levels as a result of our interest into the derrick barge I-play business. They’re often procurement components to these contracts so they’re typically charged to the clients on a cost plus basis. And this is not characteristic of our historical diving services contracts.

Next slide, we laid out our backlog. As Quinn mentioned, we’ve increased from $175 million at year-end to $450 million as of April 30. This backlog is pretty evenly spread out between the Gulf of Mexico, the East Coast of the United States and international.

Speaking of international, the next slide, as Quinn also mentioned, our international business’s performing well. 50% of our revenues from the first quarter derived from foreign operations. It also represents more than double our gross dollars of international revenues quarter over quarter. Another point: You can also see that our Gulf of Mexico exposures reduced from 80% from the first quarter of last year to only 39% this first quarter with the East Coast contributing to that 11%.

All right, next slide: You see our financial leverage is fairly healthy. As of March 31st, we are down to at 32% net debt ratio. We elected to prepay $40 million of our term loan down during the quarter. Our next prepayment of $20 million is due on December 31st.

Additionally, we have full access to capital via our $300 million revolving credit facility which we will use to fund investments and new assets or acquisitions. This revolver combined with our cash flow gives us plenty of drive power to capitalize on growth opportunities.

The next two slides cover our revenue and EBITDA ranges and as I said earlier, we are reaffirming guidance which equates to basically and roughly $900 million to $1 billion from revenues, and EBITDA range of $260 million to $300 million and EPS guidance of $1.01 to $1.35.

And then finally we included at the end of our presentation our non-GAAP reconciliations for your reference. And with that, I think we’ll open up the floor for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from Jim Rollyson - Raymond James.

Jim Rollyson - Raymond James

Nice pick up in backlog. Is that mostly representative of the Horizon assets?

Scott Naughton

No, that actually covers very nice range of our activity levels: diving, barge, pipelay, and derrick barge.

Jim Rollyson – Raymond James

Quinn, you mentioned seeing picking up activity or bidding levels. Is that in the Gulf or elsewhere? Can you give us a little bit more detail there?

Quinn Hébert

Sure. I think it’s worldwide. I think to give a little bit more color on that, we see a lot of tendering primarily Middle East, Southeast Asia, South America, Mexico, and then the US. I think if you look at our backlog, Scott and I was just quenching the numbers. About 70% of the backlog is actually new construction-type projects and the rest of the backlog shapes up between expected repair and maintenance and salvage work. So that to me is a good barometer that the backlog is actually installing new pipes for new prospects.

Jim Rollyson – Raymond James

With your balance sheet getting a bit better shape is your mission, Kregg. Do you see any opportunities out there for more consolidation internationally?

Kregg Lunsford

Yes, I think last year I think we said in one of the calls that patience was a virtue in the market and though we don’t get everything right, I think we got that one right. To the think we see in some of the less in telling off of pricing assumptions so we are a consolidator abide this market. So we’ll see where we end up on that.

Jim Rollyson – Raymond James

Any thoughts on maybe how, you reiterated guidance, but maybe how this might fit into the next three quarters because at least we obviously missed the magnitude of seasonality here in the first quarter? Just trying to presumably some of this trail’s off in the fourth quarter when you get back into the winter season but any loss of timing?

Kregg Lunsford

I think we said at year-end, we’re not trying to give the core of the guidance obviously, but we tried to set the stage for a typical ranges in a normal year and I think we said then that 65-75% of our earnings could be earned in the last half of the year. To give you some directional guidance, I think this year because of the exceptionally persevere weather in the first quarter this will be a little bit abnormal. We’re probably at the high end if not in excess of that in terms of the earnings contribution by quarter. So you could maybe see on top of that in the last half of the year.

Operator

Your next question comes from the line of Michael Marino with Johnson Rice.

Michael Marino - Johnson Rice & Company

The project in the East Coast, I think you all said it would be worked in the summer. Is there west seasonal impact because of that project or does that follow the normal Gulf of Mexico seasonality? In other words, are you going to be working in December too that maybe help Q4 a little bit more than normal?

Scott Naughton

Yes, Mike, there is similar seasonality beyond that. We have a 2008 phase that will kick off in the summer and then a smaller portion we’ll start up in late spring of 2009. So it’s a similar pattern.

Michael Marino – Johnson Rice & Company

When does that summer phase wind down?

Scott Naughton

That should be September/October. I wouldn’t expect it to go much later than that.

Quinn Hébert

In terms of just to reiterate a seasonality point that we made at year-end, often times the momentum of the third quarter and the good weather months runs over end of the fourth quarter. As long as the winter weather doesn’t start up too soon, often times the fourth quarter is your second best quarter of the year. And often times the bad weather in the first quarter bleeds over into the second quarter. So relatively speaking, your best quarter’s the third with fourth being second, second being third, to be confusing, and then the first quarter obviously just happens.

Michael Marino – Johnson Rice & Company

Has the bad weather run over into Q2?

Scott Naughton

April was somewhat similar plus we’re wrapping up some of our capital projects on some of the dry docks but we see several of the barges kicking off in May. Our diving assets right now, with good weather, all of our diving assets are working.

Michael Marino – Johnson Rice & Company

You mentioned looking at acquisitions in international markets. Are you more focused on construction vessels or dodge support?

Quinn Hébert

Right now we’re looking at probably capital project enabling assets which are primarily the bigger assets, the combination derrick lay barges. Something similar to the Sea Horizon and then we’re also looking at UR versions of our DP-2 saturation diving boats.

Michael Marino – Johnson Rice & Company

Are you at all interested in the new build market or is that something maybe you’re prohibited from?

Quinn Hébert

We’re not prohibited from it. We’d like to make investments where we can get a good acceptable rate of return on full cycle basis. So, we’re being patient right now and seeing which one of these new builds owners has the staying power to compete in a typical market that’s not supported on just hurricane repairing capability. So we’ve got to be patient right now.

Michael Marino – Johnson Rice & Company

Bids outstanding, you don’t typically give that number but can you maybe just put that in perspective of where the bids outstanding are today versus maybe it were three months ago/six months ago?

Quinn Hébert

This right now compared to six months ago we’re a lot higher than we were. We’re seeing a lot of nice, juicy projects that fit into the sweet spot of our asset and people capabilities. So we feel pretty good about it going forward.

Operator

Your next question comes from Stephen Gengaro - Jefferies & Company.

Stephen Gengaro - Jefferies & Company

When you look at your full year guidance range, I think and maybe I’m wrong from your telling, but I think you’re certainly weaker than expected the first quarter as a total. I’d have to think you’re less optimistic about the top versus the bottom now or is that not true?

Quinn Hébert

No, that’s not true. This quarter is exactly in line with our expectations. We’re talking about the impact of this winter weather was going to have. It started earlier. In the third quarter, we’ve been talking about this since the third quarter and it is exactly in line. So we are just as optimistic about the upside as we were when we gave our initial guidance.

Stephen Grengaro – Jefferies and Company

And then when I worked at the, I don’t know how much you can comment on this, but you look at Superior Energy and they won this big turnkey award for all this well abandonment work. Is that something that you could envision yourself being involved with?

Quinn Hébert

On that project, specifically, we bid and we were not the winning bidder to act as their diving contracts but those are the type of projects, the big salvage projects that are directly in our sweet spot in terms of providing integrated solutions to the client, offering diving and derrick barge services.

Stephen Grengaro – Jefferies and Company

When you look across the spectrum on your diving assets, can you give us a sense for what placing trends are doing both to your high-end VP vessels and then some of the other assets?

Scott Naughton

Yes, our assumptions from a few months ago are very much right on track. Our high-end producer is the DP Sat spreads are fully engaged and rates are staying strong there. With the 4-Point vessel, both sat and surface, we’ve seen some deterioration of those rates, but I’d like to add that in the first quarter our performance was right in line with our budget assumptions/gains rate. Really, it was utilization dropping from adjusted weather patterns that really affected us there. And the surface rates have come down anywhere from 10-20% which is right in line with what our budget assumptions were.

Stephen Grengaro – Jefferies and Company

And the 20% since when?

Scott Naughton

Last year.

Operator

Your next question comes from Joe Gibney - Capital One.

Joe Gibney - Capital One Southcoast, Inc.

Just want to touch base on Mexico, what the environment there is? Obviously, you’re fairly optimistic about some of the opportunities in Southeast Asia. You bid on a unit down in Brazil. Just curious, Quinn, if you could talk a little bit about Mexico and certainly given all the drama we have down there, what expectations are relative to tendering activity in the back half of the year?

Quinn Hébert

Mexico’s coming off the presidential election so generally speaking, PMEX, this budget is slower to come out the first year or so. That’s the case this year. So ’08 we’re looking at about five projects which is probably a little bit of a below average year for PMEX. We’re bidding right now on projects so if we win one of these, we’re probably be towards those revenues ahead towards Q3 or Q4. But after ’08, there’s a hockey stick for ’09, ’10, and ’11 for PMEX and Mexico so it’s absolutely a strategic market for us.

Joe Gibney - Capital One Southcoast, Inc

Kregg, on the quarter, could you help us a little bit on the margin. Just curious. Stripping out some of the opportunistic dry docks. What gross margins have shaked out on it and what Q?

Kregg Lunsford

Well, the dry dock costs, first of all, get capitalized and advertised over a 30-month period so they don’t have that dramatic of an impact just in the quarter. annually we expect on an annual basis with the blending of the derrick barge and pipelay businesses and those contracts I talked about earlier, we expect anywhere from a 25-30% range for our gross margins. Obviously we’re in the territory here but that’s how we budget and what we expect. And to put that in perspective, surely diving services business’s historical average on a pre-hurricane basis is probably in the 35-45% range. They did shoot up to a 40-50% on the response to the hurricane levels but anyway that’s a good blended expectation on an annual basis.

Joe Gibney - Capital One Southcoast, Inc

Any update on ’08 CapEx? Are we still in that $90 and $100 million ballpark for the year?

Kregg Lunsford

Yes, we’re still in the $90-100 million and with about half of that thing nondiscretionary, regulatory dry dock driven, and the other half being new equipment purchases, sat system construction, and other upgrades.

Operator

Your next question comes from Roger Read - Natexis Bleichroeder.

Roger Read - Natexis Bleichroeder

A lot of people talking about the backlog. I understand the geographic spread and all that. What would you say is a book margin relative to your expectations for a generally lower gross margin going forward given the change in the vessel fleet and type of project? Do you feel that this is mostly to work outside the Gulf of Mexico, that you’re pretty comfortable, that you can actually key it and achieve what you want to there?

Kregg Lunsford

Yes, absolutely. It’s a hot quality backlog and the margin expectations are in line with our budget, our forecast.

Roger Read - Natexis Bleichroeder

And any particular unusual, maybe unusual is the wrong term, but different from the Gulf of Mexico in terms of risk profile on any of this work. We understand the seasonality occurred in Q1. You don’t want to take weather risks. Maybe walk us through particularly the large contract on the East Coast how that shakes out.

Quinn Hébert

That large contract we bid on a qualified lump sum basis to specific skill board to the client. The mode and démodé is lump sum. The pipelay is lump sum, which is something that we have in our control. The plowing and trenching in back field which is a little bit different proposition is on the day rate basis. So we feel pretty good about that risk profile on that contract.

Roger Read - Natexis Bleichroeder

Maybe the schedule and planned downtime that occurred in Q1 to do the work on the fleet. You get half of that taken care of in Q1. I think last year at this time, you gave us a bit of a schedule that worked out. I don’t know that that’s necessarily in the cards but if you could maybe walk us through how much more of that work occurred in Q2 and then, maybe as a percentage, what’s left in the back half of the year?

Kregg Lunsford

Yes, we’ll be doing about 20% of the balance in the second quarter and the rest is balanced in the third and fourth quarter. Although, the fourth quarter is about 10% and there’s potential for us to get extensions on those so they would get pushed into January of ’09.

Roger Read - Natexis Bleichroeder

So you could see actually more than 70% of it’s done as we speak then.

Quinn Hébert

Yes, correct.

Roger Read - Natexis Bleichroeder

All right and then in terms of the $10 million cost savings target, was any of that realized in the first quarter. I understand the headcount reductions and everything you’re working through but should I think about that in terms of margin improvement acting and weigh it equally dispersed?

Kregg Lunsford

I think one way to look at it is, Brent and I were just crunching numbers earlier, if you go back and look at what our, a lot of that’s going to be reflected through our SG&A. Some of it is blended into the gross profits which is hard to understand when you have the market that we had in the first quarter.

But if you just take a look at our SG&A, if you look at last year and you take the fourth quarter out because there are a lot of anomalies in both our numbers and theirs related to the transaction, but if you annualize the numbers through September 30 for SG&A, we’re probably close to a $20 million run rate. And if you look at our expectations for this year, we’re around between $17 and $18 million run rate. So you see a couple million dollars a quarter already just by evaluating our SG&A costs.

So that answer is yes. We are realizing that real time in the first quarter. It’s a little bit offset with severance costs and some other things but it’ll probably be between that and the market getting back to higher activity levels. That’ll be more apparent for the remainder of the year.

Scott Naughton

Still may be potential to exceed the $10 million target. It’s just that we may not see some of that, business picks up and bidding cost etc.

Quinn Hébert

Yes, I think as we said, we had a high degree of confidence in our $10 million target because a good chunk of that was really just driven by cost synergies that are very much within our control. We are still planning on upside on the revenue pull through opportunities from there.

Roger Read - Natexis Bleichroeder

As you put the vessels in the dry dock during Q1 and Q2, how much of the operating costs increase that we saw year over year was, say, due to things you don’t capitalize while the vessel’s in the yard as opposed to just the higher costs due to the fleet mix change year over year? How much of the off cost in Q1 was due to shipyard?

Quinn Hébert

Well, again, most of the dry out cost are capitalized and certainly capital projects are capitalized to the basis in the asset. I think to your point the margin impact, due to the low utilization, that’s where we really see the impact of the fixed cost basis of these assets when they’re not working. So, I think that’s the nature of your question.

Scott Naughton

Yes, that’s a new cost level you’re dealing with, ex-work that you’re working on passing through fuel costs etc.

Operator

Your next question comes from Sonny Randhawa - Bank of America Securities.

Sonny Randhawa - Bank of America Securities

You got into 50/50 break out in terms of turnkey and then call that work. I know you don’t take on weather risks, only from May to October. How much for the quarter was turnkey and how much was call out?

Quinn Hébert

We’re substantially more call out in the first quarter. 80% percent compared to about 20% turnkey revenues.

Sonny Randhawa - Bank of America Securities

I’m assuming that’s what gives you more confidence in your guidance because a lot of that is going to be turnkey work in the middle half of the year?

Quinn Hébert

Yes.

Sonny Randhawa - Bank of America Securities

Looking at it from just a utilization standpoint, for the saturation diving vessels, is that the new run rate we should be looking at for first quarter of the year or was this just an exceptional year?

Quinn Hébert

I would say across all asset classes, the utilization in the first quarter is probably as low as we’ve experienced in the last ten years. So, certainly it’s possible. It can happen with this, with the New Year we’re in, but this was an exceptionally low utilization quarter by any measure.

Sonny Randhawa - Bank of America Securities

I’m going to be hopping around a lot because a bunch of questions has already been answered. But on the bidding activity, you said it’s been higher. Has that been higher across the board or there are areas that are, Gulf of Mexico, Southeast Asia, which one are you seeing the most amount of bidding activity?

Quinn Hébert

I would say it’s high just across the board. I think just globally it’s just a robust demand for our services.

Sonny Randhawa - Bank of America Securities

And in terms of construction demand in the Gulf of Mexico, is that picking up as well?

Quinn Hébert

Yes, absolutely. We’re building a nice backlog for both our pipelay fleet and our derrick barge fleet in the Gulf of Mexico. And most of that work is new construction.

Sonny Randhawa - Bank of America Securities

The thing is you; backlog’s really impressive based on how long you’ve been a combined company. What backlog number or what in terms of a percentage of revenue, would be like a run rate or goal that you would be looking for, say, to start out 2009 with?

Quinn Hébert

Your point is right on. Historically, Cal Dive hasn’t even reported backlog. Half of our fleet is a spot market in short-term duration project business. And so backlog hasn’t really been meaningful to us. So we are pleased that we got to this level of backlog this quickly after being in combined business. I’m not sure we’ve been doing this long enough to really have a target as a company yet and we will continue to give you insight as we get more comfortable working together but I don’t think we want to step out saying anything just yet on that.

Sonny Randhawa - Bank of America Securities

In terms of the bidding activity, should we be seeing the backlog increase before it run out or worked off?

Quinn Hébert

Again we’re nearest but logically it would seem to me that going into the next quarter we would build and then as you get towards the end of the third and fourth going into the winter months, you could see it coming back down. So it’ll be seasonal just like our businesses.

Sonny Randhawa - Bank of America Securities

First quarter was pretty much within your guidance. You reported the end of February so I’m assuming that most of it was already locked in. Were you able to ramp down some of your costs at all just based on what your outlook was going to be for utilization during the quarter?

Kregg Lunsford

Yes, we certainly did especially with the very small boats, again, the smaller revenue producers. We consolidated some of the vessels and we’re able to cut back on the crew costs. And the barges were definitely cold-stacked so we could get to; we anticipated the slow activity in the first quarter.

Operator

Your next question comes from David Smith - JP Morgan.

David Smith - JP Morgan

On the utilization break out between the DP and the 4-Point Sat vessels in the quarter, I expect it’s fairly tilted towards the 4-Point but wondering if you all had a break out for that?

Kregg Lunsford

I don’t have that at my fingertips, talking about the break out between the surface diving?

David Smith - JP Morgan

In the sat vessels in particular. I expect the DP probably got much higher than the 4-Point sat vessels but just wondering if you all had a break out for the quarter.

Kregg Lunsford

I would say that the declines were fairly evenly shared between all asset classes, even if you look at 4-Points as the standalone class, both in sat and surface. They have, again, exceptionally well utilization. So there’s not a meaningful difference in the declines between that.

David Smith - JP Morgan

Did you have a utilization figure for the portable sat systems?

Kregg Lunsford

No.

David Smith - JP Morgan

And did I hear you say that all of your diving assets are currently working?

Kregg Lunsford

Yes, when the weather breaks and we have a good weather opportunities, we go to work.

David Smith - JP Morgan

Has the recent US Gulf jack up count increased? How should we be thinking about the timing between the increased jack up count and maybe the follow up construction demand?

Quinn Hébert

It depends on what the clients developed scheme is but generally speaking, we’ll go to 9-18 months after they find a well. And the real big issue is just grabbing the permit. The pipe is usually available, up barges available; the tie end sub-C drill is available. It’s usually the MMS permit that’s usually the bottom of that connect process.

David Smith - JP Morgan

Could you update us on your view of the decommissioning market in the US Gulf going forward?

Kregg Lunsford

We’ve said this before and I’d hate to sound like competitive but we would never a big subscriber to the theory that there would be thousands of platforms that get to be decommissioned all at once and I think we see the decommissioning market unfolding an irrational manner. It’s the last place that clients want to spend money because the return on capital employed is zero.

And so, we see the back market unfolding. It’s a good market. It keeps our derrick barges and our dive boats busy. And I think it’s going to be steady. I think in ’99 or 2000, it’s when we started removing more platforms in the Gulf and then we were installing, and I think that trend’s continuing. And I think it’s a good steady market for us.

Operator

Your next question comes from Karen David-Green - Oppenheimer.

Karen David-Green – Oppenheimer

Once again, hitting on bids outstanding, a lot of tendering activity coming out of Middle East and Southeast Asia. Can you compare and contrast some of the pricing trends versus the US Gulf of Mexico market.

Kregg Lunsford

First of all the pricing terms generally overall and the international markets are coming more or more in line with what we’ve historically experienced here in the Gulf. So, we’re happy with the pricing trends. Obviously, the other difference with us in the reconstruction asset business with the pipelay and derrick barge capabilities. We’re moving into a more of a fixed priced contracting large scope projects than we had historically have been in.

So there’s a lot of the pricing has to do with execution. But overall, the international pricing is in lab with what we’ve expected and is encouraging.

Quinn Hébert

Karen, I think if you look at the three areas that we’re looking at, the Med, the Middle East, is probably we’ve bid more there. Southeast Asia, number two, and then Latin and South America will be number three in terms of just general tendering activity levels.

Karen David-Green – Oppenheimer

Right and is it fair to say that most of the bids outstanding are for work during 2008?

Quinn Hébert

It’s a combination of towards the tail end of 2008 and 2009 and beyond.

Karen David-Green – Oppenheimer

Are there any kinds of bonus incentives with regards with the US East Coast project that you just announced?

Quinn Hébert

We’d rather not get into details on the specific projects but I appreciate the question.

Karen David-Green – Oppenheimer

And just lastly, looking at your $100 million in core CapEx, can you walk us through what additions you’re making?

Kregg Lunsford

Half of that is regulatory required dry dock and maintenance. We’ve got seven portable sat systems in operation right now. We’re scheduled to have three more in operation through this summer. So there’s some construction of new portable sat systems is a big chunk of that. We are installing a new crane on the eclipse which is a big chunk of that. And then we’re generally buying, replenishing our other dive support equipment across the fleet and in our supply chain.

Scott Naughton

Basically makes up the difference.

Quinn Hébert

Something else to add to that Scott?

Scott Naughton

Yes, we’ve added a second work class ROV to the Castrol and with all of our sat vessels that we’ve dry-docked; we’ve enhanced the capabilities and depths of the sat systems themselves.

Operator

Your last question comes from Joe Hill - Copia Capital.

Joe Hill – Copia Capital

I don’t know much about the IRM market off shore Brazil. I know pipelay’s getting pretty hot down there. Can you talk about the IRM market and how much of that develops into a diving market as opposed to an ROV market?

Quinn Hébert

Brazil is a tough market. I’ll tell you that. First of all to compete in. Number one: You have to be able to speak Portuguese, but I think that market is turning into a pretty hot market. We’re looking at it on the shallow water. There’s a lot of aging infrastructure, the Petrobras needs to replace and upgrade. So we’re taking a real hard look at that area and I know the deport it gets all the sizzle. But the nice shallow water market there that’s starting to open up in a big way.

Joe Hill – Copia Capital

So we could expect to maybe see you do something down there in the next couple years?

Quinn Hébert

You could. It’s definitely on our radar screen as is the rest of South America.

Operator

And at this time, there are no additional questions.

Quinn Hébert

Thank you everyone for your interest in participation in the call today for Cal Dive. We’re working hard for our shareholders. We have a shareholder’s meeting scheduled for next week. We invite everyone to come to it. The proxy statement’s on our website so we appreciate your time and attention and we’ll see you at the next call. Thank you very much.

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Source: Cal Dive International, Inc. Q1 2008 Earnings Call Transcript

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