Wednesday, November 19, 2008

Deep Down, Inc’s (DPDW.OB) 3rd Quarter 2008 Revenues Skyrocket On Two Key Acquisitions

One of the ways companies experience revenue growth is by buying other companies. For the 3rd Quarter 2008, Deep Down, Inc. reaped the fruit of this strategy as its revenues shot up from its acquisitions of Mako Technologies, LLC and Flotation Technologies, Inc. For the 3 month period ending September 30, 2008, gross revenue was $11.7 million, compared with $6.8 million for the same period in 2007. The purchases of Mako and Flotation Technologies accounted for $8.5 million, or 73%, of Deep Down’s 3rd Quarter revenues.

The purchases of Mako and Floatation Technologies also gave Deep Down’s gross profit a boost. For the quarter, gross profit came in at $5.3 million, as compared to $1.3 million for the 3rd quarter of 2007, an increase of $4.0 million. Mako and Flotation Technologies were the driving force on this increase while Deep Down’s older service lines produced a loss because of the projection terminations and decrease in sales.

Although acquisitions can increase revenues, they can also increase expenses. Deep Down incurred a $2.8 million increase in sales, general, and administrative (SG&A) expenses to $3.7 million for 3rd Quarter 2008 as compared to $900,000 for the same period a year earlier. Mako and Floatation accounted for $1.3 million of the additional SG&A expense.

Taking a longer view and examining the results on a calendar year basis for the nine months ended September 30, 2008, the gross profit was $10.4 million as compared to $3.8 million for the same period last year. Deep Down flexed its pricing muscle and was able to boost its gross profit margins from 31.6% to 40.2%, showing its market strength is not based purely on its ability to purchase other companies.

Asked to comment on the results, Robert E. Chamberlain, Jr., Deep Down’s Chairman said that his company’s finances “show strong growth within our industry.” He also said “[s]tockholders’ equity remains strong and is now $54.6 million compared to $12.6 million on December 31, 2007.” Finally, he noted, “with the Company now nearly debt free, we are poised to continue our business growth strategies and leverage the rising subsea, deepwater, and ultra-deepwater project opportunities currently forecast for installation.”

Deep Down’s CEO, Ron Smith, also believes demand for the company’s core deepwater products and services will stay strong. “In spite of certain segments of our industry experiencing delays and slowing growth due to global oil price fluctuations, credit, and cash flow issues,” he said, “ we continue to expect strong deepwater order activity.”

Based in Channelview, Texas and started in 1997, Deep Down sells products and provides various services to the offshore energy industry in support of deepwater energy exploration and development. Its customers are located worldwide.

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