Mr. Hébert continued, “Looking forward, we expect improved financial performance over the next two quarters compared to the fourth quarter last year and the first quarter this year driven by our project execution in Mexico and steady work in Australia, which is commencing its summer work season. The timing of financial improvement resulting from the Pemex awards between the fourth quarter of this year and the first quarter 2014 will ultimately depend on the percentage of each project completed by year-end. We will continue to focus on international growth while we navigate through the challenges presented by the domestic shallow water market.”

Financial Highlights

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    Backlog: Contracted backlog was $340 million as of September 30, 2013. This compares to backlog of $172 million at December 31, 2012 and $224 million at September 30, 2012. Of the backlog as of September 30, 2013, $302 million relates to international work and the remainder relates to work in the U.S. Gulf of Mexico, with 48% of the total backlog expected to be performed during the remainder of 2013.
 

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Revenues: Third quarter 2013 revenues increased by $17.1 million, or 12.4%, to $155.2 million compared to the third quarter 2012. The increase in revenues is attributable to increased work in Mexico, offset primarily by a decrease in domestic revenues. International revenues accounted for 68% and domestic revenues accounted for 32% of total consolidated revenues for the third quarter 2013, compared to 52% international and 48% domestic for the third quarter 2012.
 

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Gross Profit: Third quarter 2013 gross profit was $10.4 million, an improvement of $6.5 million, compared to the third quarter 2012. The improvement from prior year is primarily attributable to better margins on work in Mexico and the cost savings initiatives the Company implemented during the second half of 2012. These improvements were partially offset by the deterioration in domestic results due to lower utilization of the Company’s domestic vessels.
 

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G&A: Third quarter 2013 G&A decreased by $2.4 million to $11.1 million compared to the third quarter 2012. G&A for the third quarter 2012 includes $1.5 million in severance costs associated with headcount reductions. G&A decreased an additional $0.9 million in the third quarter 2013 compared to 2012 due to headcount reductions and other cost savings measures. As a percentage of revenues, G&A was 7.2% for the third quarter 2013 compared to 8.8% for the third quarter 2012, excluding the severance costs in the third quarter 2012.
 

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Interest Expense: Third quarter 2013 net interest expense increased by $1.1 million to $5.7 million compared to the third quarter 2012, primarily due to higher outstanding balances on the Company’s revolving credit facility during the quarter and additional interest on the Company’s $20.0 million unsecured debt used to fund the up-front procurement of pipe and other project materials required under the Company’s four contracts in Mexico.
 

 
For the third quarter 2012, the Company recorded a marked-to-market adjustment of $8.4 million in the fair value of the derivative liability as a reduction to interest expense related to the embedded conversion feature of the Company’s convertible debt. There was no marked-to-market adjustment in the third quarter 2013 as the embedded conversion feature is no longer required to be separately valued and accounted for as a derivative liability.
 

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Income Tax: The effective tax benefit rate for the third quarter 2013 was 40.3% compared to a tax benefit rate of 39.9% for the third quarter 2012. The difference in the effective tax rate from the statutory rate is due to the mix of pre-tax profit and loss between U.S. and international taxing jurisdictions with varying statutory rates.
 

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Balance Sheet: As of September 30, 2013, total debt consisted of $86.25 million in convertible notes, $31.7 million under a senior secured term loan, $69.7 million outstanding under a revolving credit facility and $20.0 million under an unsecured term loan. Cash and cash equivalents were $6.1 million, for a net debt position of $201.5 million at September 30, 2013, compared to net debt positions of $151.8 million at December 31, 2012 and $161.7 million at September 30, 2012. The increase in net debt is primarily due to the working capital needs for the Company’s four projects in Mexico. The net secured debt amount that is subject to financial covenants was $95.3 million at September 30, 2013, $65.5 million at December 31, 2012 and $75.4 million at September 30, 2012. Total debt presented on the consolidated balance sheet at September 30, 2013 is net of a debt discount of $19.8 million on the Company’s convertible debt. As of September 30, 2013 the Company had $45.8 million of remaining borrowing capacity under its revolving credit facility.

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