Deep Down, Inc. ("Deep Down" or the "Company"), a specialist in deepwater production and distribution equipment and services, reported results for its quarter ended June 30, 2022. Deep Down will hold a conference call tomorrow, Tuesday, August 9, 2022 at 10:00 am Eastern Time to review its results and outlook (call details below).
Charles Njuguna, Deep Down's CEO, commented, "Deep Down's top-line results for the second quarter of 2022 are indicative of the ongoing challenges that face the offshore industry. Inflation, certain geopolitical events, and the possibility of a prolonged recession continue to weigh on our customers' abilities to commit to long-term deepwater projects. While some of these factors are systemic, we remain focused on the levers within our control as we work to grow the business.
"We are dedicated to the growth of our business, and during the quarter, we saw a glimpse of what that growth could entail. We expanded our cable management expertise beyond our traditional oil and gas offerings by providing cable management services for a military project in the northern half of the United States, and we received an order to provide hydrogen energy related services. The scope of these projects not only demonstrate the transferability of expertise we developed over the past 25 years, but it also validates our strategy to shift focus from core products and services to core competencies. This is in addition to announcing the relocation of the business and a rebranding of the company in the first quarter of 2022. When the move is completed later in the third quarter of 2022, we are confident that our new headquarters will enrich our team's ability to support the needs of our clients, while allowing us to spread our wings to discover even more diverse offerings. Secondly, rebranding the company from Deep Down, Inc. to Koil Energy Solutions, Inc. was the next step in promoting our core competencies to expand our product and service offerings into new markets. While we are still awaiting approval from the Financial Industry Regulatory Authority ("FINRA") for our name and ticker symbol change, we have moved forward with this change operationally and are currently working with our customers under the new brand.
"The growth of our business remains a top priority and managing cash flow and preserving liquidity remains of critical importance. Bidding and project activity remain strong, and we are confident our streamlined operations and continued focus on our core strengths will enable us to be the primary choice for our customers. This, combined with our recent rebranding efforts to Koil Energy and the upcoming move to our new headquarters later this year, will provide us with the momentum needed to achieve this desired growth."
Operating Results
Deep Down's revenues for the three months ended June 30, 2022 ("Q2 2022") decreased 23 percent to $3.5 million compared to $4.5 million for the three months ended June 30, 2021 ("Q2 2021") primarily due to a decline in product-oriented, fixed price contracts offset by an increase in short duration projects utilizing our support services and rental solutions.
Gross profit for Q2 2022 was $1.5 million, or 42 percent of revenues, compared to Q2 2021 gross profit of $1.4 million, or 31 percent of revenues. The increase in gross profit was due to incurring less materials costs and decreases in lower margin passthrough service costs for the three months ended June 30, 2022.
Operating expenses were $1.5 million, or 42 percent of revenues, in Q2 2022 compared to $1.8 million, or 40 percent of revenues, in Q2 2021. The $0.4 million, or 19 percent, decrease in operating expenses was mainly due to recording a $0.5 million reserve for doubtful accounts receivable related to prolonged customer payment terms and uncertainty around certain customers' liquidity for the three months ended June 30, 2021.
Due to the factors discussed above, Deep Down reported a Q2 2022 net profit of $0.2 million, or $0.01 per diluted share, compared to a Q2 2021 net profit of $0.7 million, or $0.06 per diluted share. Per share results for Q2 2022 and Q2 2021 are based on 12.06 million and 12.44 million weighted average shares outstanding, respectively.
Deep Down reported a modified EBITDA of $0.2 million in Q2 2022 compared to a modified EBITDA of negative $0.1 million in Q2 2021. The increase in modified EBITDA was primarily impacted by the increase in gross margins during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Modified EBITDA for the three months ended June 30, 2021 was also impacted by recording a $534 reserve for doubtful accounts receivable during that period. This is compared to recording a $55 reversal to the reserve for doubtful accounts receivable for the collection of previously reserved amounts during the three months ended June 30, 2022.
Share Repurchases
On June 3, 2022, the Company repurchased 147,059 shares of common stock from Mr. Smith at a total cost of $0.1 million. The price per share used for each transaction was market price, and the average price per share paid to Mr. Smith was $0.68.
No shares of common stock were purchased during the quarter ended June 30, 2021.
Financial Strength
At June 30, 2022, Deep Down had working capital of $6.3 million, which includes cash of $3.4 million and receivables of $5.3 million. Total shareholders' equity was $9.9 million, or approximately $0.83 per common share. Given the Company's current capital structure, Deep Down remains in a strong position for continued growth.
